Thursday, March 27, 2008

Housing Affordabilty Index Reaches 4-Year High

Update: The chart above shows the National Association of Realtors' Housing Affordability Index (HAI) from 2005 to Feburary 2008 (annual averages for 2005 and 2006, monthly in 2007 and 2008), based on the national median-priced home, median family income, and the 30-year fixed mortgage rate.

The HAI has gone from 103.6 in July 2007 to 135.6 in February 2008. A composite HAI of 135.6 means that a family earning the median family income ($59,967) in February had 135.6% of the income necessary to qualify for a conventional loan (at 5.94%) covering 80% of a median-priced existing single-family home in February ($193,900). This increase of more than 31.6 points in the HAI in just seven months, from both falling home prices and falling mortgage rates, is already starting to have a positive effect on the housing market (February sales increased) and could continue to play an important role in the recovery process for the slumping real estate market.

Housing affordability is higher today than at any time since early 2004. For the perspective of homebuyers, aren't we now in a real estate boom, since affordability is the highest level in four years?


At 3/27/2008 5:45 PM, Anonymous Anonymous said...

Found these numbers interesting in today's WSJ. New house sales declined 1.8% in Feb. 2008 to an annual rate of 590,000 and were 29.8% lower than a year earlier. The median new home price was $244,100 during the month down 2.7%from a year earlier. The # of unsold new homes fell for the 11th straight month to 471,000 (9.8 months supply at current rate of sales).

The decline in the median price seemed remarkably modest in contrast to the decline in existing home prices. Using the chart, the median home price (193,900 vs. 212,400 in Feb. 2007 represents an 8.7% decline; 11% decline from 2005 median home price of 219,000).

Question: Do new home prices need to fall further or are new homes better able to hold their value due to limited supply and premium that buyers are willing to pay for the product? Is there any information that might suggest stabilization of this segment?

Would appreciate any analysis/thoughts on this.

At 3/29/2008 2:33 PM, Blogger Unknown said...

Your argument is nearly identical to one that tells us its time to buy stocks based on stock market valuations. Such an approach encourages people to double down on a bad investment and will cost you your shirt in a true bear market. And I think it is safe to assume based on the data, that the real estate market is in its biggest bear market since the 1930s...

Like Cramer advising his listeners to hold on to Bear Stearns on March 11 when the stock was trading at $63, telling people that now is the time to buy property without concrete proof that prices have stopped falling is just plain bad advice!

The way prices and the property market is going, prices could be back to late 1990's levels of affordability or earlier before that time will come.

To answer the above post, the costs of construction have also moved way above the historic trend so need to come down further. I see no evidence whatsoever in a stabilization of new or existing home prices no matter what Lawrence Yun head cheerleader for the National Association of Realtors (whose job it is to sell homes) would have you believe.

Matt Blackman -


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