Tuesday, December 06, 2011

Housing Affordability At Record High in October

According to a release today from The National Association of Realtors, the Housing Affordability Index reached a new all-time record high of 197.8 in October (see chart above).   Based on the hypothetical purchase of the median-priced home of $161,600 in October, financed at the average mortgage rate of 4.32% (with a 20% down payment), the median family income of $60,871 was 197.8% of the $30,768 income required to qualify for the financing and the $641 monthly payments (principal and interest).   

In other words, median family income in the U.S. is now nearly double the income required  to qualify for the purchase of the median-priced home.  Housing has probably never been more affordable in U.S. history than it is today, and you would think that the record affordability would eventually have to start translating into robust home sales and a strong real estate recovery.  

22 Comments:

At 12/06/2011 11:37 AM, Blogger Nathan Econ 315 said...

Does the high affordability of houses indicate the housing market is ready for a rebound, or does is show that housing/mortgage companies are getting desperate? I'm a student in a money and banking course right now and one theme our professor always points to is the herd mentality of investors. Has confidence been restored to the point that investors are ready to take on 20-30 years of debt?

 
At 12/06/2011 11:49 AM, Blogger Benjamin said...

This is what hyper-inflation looks like?

 
At 12/06/2011 12:21 PM, Blogger juandos said...

I think the new prices for housing reflect the realities of today...

 
At 12/06/2011 12:43 PM, Blogger 434AT3M3 said...

Location, location, locations...home are not affordable in the NYC tri-state area if you want good schools.

The data is very misleading.

 
At 12/06/2011 2:16 PM, Blogger Walt G. said...

Willing to buy and able to buy are not the same thing. If you subtract from the buying pool people who are underwater and cannot/will not sell their current house, and the people with no job or underemployed, the people who have credit too poor to buy a house, and the people with not a large enough down payment saved to meet the new lending standards, how many people are left to buy these affordable houses? In fact, maybe that is why they are affordable.

 
At 12/06/2011 2:28 PM, Blogger Bill said...

Now if the banks will just start lending we might see a housing recovery.

 
At 12/06/2011 2:37 PM, Blogger morganovich said...

"Now if the banks will just start lending we might see a housing recovery."

how can they? they have been completely priced out of the market by freddie and fannie, who are 90% of lending.

the real problem is that so many people are underwater that they cannot move and many of the rest have insufficiently good credit to get loans.

if you already own a home and can't refi, housing affordability is totally meaningless.

you just have a depreciating currency.

going underwater works just like inflation by adding that deficit to the price of anything you buy.

 
At 12/06/2011 3:01 PM, Blogger juandos said...

"Location, location, locations...home are not affordable in the NYC tri-state area if you want good schools"...

Then why live there?

 
At 12/06/2011 3:09 PM, OpenID adsanalytics said...

The price/income ratio is another useful affordability indicator. Currently, it is close to historic lows (see chart).

Ultimately what this translates into is greater household net worth which should lead to greater consumer spending via the "wealth effect" and, subsequently, greater economic growth and employment, all of which would be great news for the stumbling US economy.



http://www.adsanalytics.com/dashboard/docs/dashboard.php?treepage=tree_definition_main.php&chart=chart_nar_price_income_ratio

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At 12/06/2011 3:36 PM, Blogger morganovich said...

ads-

it's not quite that simple.

the index you cite really only matters if you are a first time buyer.

if you already own a house "affordability" means "depreciating currency" at best and "underwater" quite frequently.

if you bought a house for $450k that's now worth $350k, more "affordability" is the last thing you want.

 
At 12/06/2011 3:50 PM, Blogger Hydra said...

Probably the median income is calculated among those that have an income. Those who are still without a job, and a steady job at that, are probably not in the housing market.

 
At 12/06/2011 4:17 PM, Blogger juandos said...

From the Tax Foundation: State to State Migration Data

 
At 12/06/2011 4:23 PM, Blogger bix1951 said...

price or value?
I live in a house I own.
The value to me is the utility of living in it.
I am not intending to sell it or use it to secure a loan.
Therefore the "price" is not meaningful to me.
In fact, I would be better off if the price fell because I would still have the value of living in it but my property taxes would drop (California prop 13 taxes)
It is very good news for young people if affordability is high.
Predicting the future is unwise.
If someone pays you to predict the future.....???

 
At 12/06/2011 5:14 PM, Blogger Hydra said...

I would still have the value of living in it but my property taxes would drop

=================================

Probably not. It still costs pretty much the same to run the county, so if property values drope they just adjust the rate to get the amount needed.


It is interesting that people get all upset when their mortgage is upside down, which probably isn't so much their problem as it is the banks problem. As long as they have the same utility as before, they should not mind paying the same amount as before, but suddenly they see the same house next door for half th price, and buyers remorse sets in.

Yet when they own their house outright, a drop in value seems not to be near as upsetting, even though the full effect is now on them, not the bank.

 
At 12/06/2011 5:26 PM, Blogger Walt G. said...

Just like food, you have to shelter, so the house you live in is a consumable item and not really an investment any more than food is an investment. People are better off using non-home, non-vehicle net worth to determine their actual financial condition (liquid assets - liabilites).

 
At 12/06/2011 9:04 PM, Blogger VangelV said...

If you think that houses are affordable today just wait until after they go on sale next year.

 
At 12/06/2011 11:35 PM, Blogger Hydra said...

By the definition of vange I am better off for living in a modest home and having an expensive boat.

 
At 12/07/2011 3:35 AM, Blogger Ron H. said...

"Probably not. It still costs pretty much the same to run the county, so if property values drope they just adjust the rate to get the amount needed."

Not in California they can't.

 
At 12/07/2011 3:43 AM, Blogger Ron H. said...

"Yet when they own their house outright, a drop in value seems not to be near as upsetting, even though the full effect is now on them, not the bank."

What are you talking about? How would you know what things seem to be upsetting or not to other people?

And, unless your state is non-recourse, none of it is on the lender.

 
At 12/07/2011 10:04 AM, Blogger morganovich said...

"Predicting the future is unwise.
If someone pays you to predict the future.....???"

um, so what do you do? make random decisions based on a coin flip?

how can you live without predicting the future.

lots of people (myself included) get paid to predict the future. naturally, we are not always right and it's important to keep in mind that predictions are just that, predictions, but i don't see how anyone could run much less start even a tiny business without trying to predict the future.

 
At 12/08/2011 1:11 PM, Blogger Hydra said...

How would you know what things seem to be upsetting or not to other people?

==================================

Personal observation. A number of people I know have complained about being upside down on their mortgage, but no one I know whose homes are paid for seems to be near as upset over similar losses in value.

That plus observation of news stories, which often mention people with upside down mortgages, but seldom talk about those with paid up homes which have lost value.

Recourse or non-recourse, the banks can't squeeze blood out of a stone.

 
At 12/09/2011 3:39 PM, Blogger Ron H. said...

"Recourse or non-recourse, the banks can't squeeze blood out of a stone."

No, but they can garnish your wages, take your expensive boat, ruin your credit, and generally make your life miserable.

 

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