Friday, March 27, 2009

Feb Housing Affordability Hits Another Record High

The National Association of Realtors (NAR) released its latest Housing Affordability Index (HAI) today, showing that housing affordability reached an all-time, historic record high of 173.5 in February (see chart above).

A HAI of 173.5 would mean that the typical household earning the median family annual income of $59,726 in February would have 173.5% of the qualifying income to purchase a median-priced existing single-family house ($164,600) with a 20% down payment, which would be the highest level of housing affordability since the NAR started reporting housing affordability in 1971. Since mid-2006, the HAI has risen almost 74 points, from 99.6 in July 2006 to 173.5 last month.

Stated differently, the annual qualifying income required to purchase a median-price house (with a 20% down payment) is only $34,416, with monthly payments based on a 5.12%, 30-year fixed-rate mortgage ($716.58 per month for principal and interest). Given the median family income of about $59,726, the typical family would have 173.5% of the income required to qualify for the mortgage to purchase the $164,600 home.

MP: The record-high housing affordability will play an important role in the real estate market's recovery, and should be considered very positive news. This key real estate market statistic frequently gets overlooked by the media, which often seems more interested in reporting "record high jobless claims/employment losses/______ fill in the blank" when it's negative news, than reporting record high statistics like housing affordability when it's good news.


At 3/27/2009 9:41 AM, Blogger DW said...

This is kind of what we all hoped was going to happen once the real estate market started going down. Making very comfortable for anyone having a steady job looking for a home, and to be honest i only think its gonna get better for buyers by the middle of next winter.
As for the media, it's a shame that the only news every reported is negative news. It's like people want to be in a negative mind set so they can blame short comings else where on a recession. I see this economy as an opportunity.

At 3/27/2009 9:56 AM, Anonymous Anonymous said...

Houses are so affordable because there has been massive overbuilding. Can you please show the rental affordability statstics as well? In most places it is still cheaper to rent and the rents are falling with incomes. Housing is no longer grossly overvalued but overbuilding means the market price should clear lower than in previous cycles.

At 3/27/2009 11:53 AM, Blogger David Foster said...

Does this analysis consider the effect of property taxes?

At 3/27/2009 12:09 PM, Anonymous Anonymous said...

"the typical household earning the median family annual income of $59,726 in February would have 173.5% of the qualifying income to purchase a median-priced existing single-family house ($164,600) with a 20% down payment"

How many typical households do you think have enough in savings for a 20% down payment? For a median family that would be $32,920 or over 55% of their annual income.

A few years back, the mortgage companies were offering second mortgages at higher interest rates to cover the down payment, effectively allowing home buyers to put nothing down to get in a house. I don't see that happening now.

At 3/27/2009 12:17 PM, Blogger Milton Recht said...

Unfortunately, the news media, our politicians, the regulators, the President and Treasury are still too focused on the past, unanticipated sharp decline in real estate prices. Too bad none of them understands that lower residential purchase and rental prices are a net benefit to consumers over the long run.

Consumers now and will continue to have extra income to save, pay down debt, and spend on other things. As the economy reallocates its resources away from over investment in residential real estate to new, not yet noticeable areas, companies and entrepreneurs are investing, developing and planting the seeds of future long-term US economic growth and productivity gains. The constant, dynamic transformation of the US economy to more productive uses of capital through market forces has historically led to enormous job creation and standard of living gains for the entire US population

Instead of doing his best to nurture and assist the natural, recurring internal economic transformation, our President is doing his best to stop change. He is forcing US citizens to invest needed capital in stagnant and dying industries. He scarily believes he knows the winning, successful future industries and technologies better than the entrepreneurs, private investors, capital and equity markets. Only someone who has never managed any part of a business would be so arrogant.

Many of his concepts are paternalistic. His programs tend to deny consumer choice as a means of cost savings because he thinks he knows what consumers want and need better than the consumers themselves do. The President is denying bankruptcy and market force based industrial reorganization, and stopping the issuance of immigrant visas to highly trained, skilled, experienced educated workers who as a group receive the most US patents. The President is decreasing the expected returns on capital through higher business related taxes and costs. He is increasing the business risk to the entire private sector by denigrating wealth as a reward, by a willingness to chastise and retroactively ignore the rule of contract law and by his belief in the rigidities and productivity inefficiencies of unions. He believes in wage controls of non-union workers by desiring to redistribute the wealth of workers who choose and develop the skills and training for high paying jobs. His jealousy of others who make money and his willingness to pit one class against another is shamefully visible. Where was his moral outrage against those who threaten the lives of AIG workers or against the Congressman who called for their suicide?

Politicians in times of economic dislocation, despite their glorified rhetoric of helping US citizens, are primarily concerned about reelection and protecting their voting constituent base including unions and their aging, stagnant and dying industries. Unions and mature industries heavily contribute to re-election campaigns, including President Obama's, expressly to get favors to protect their industries from natural market forces.

Natural economic market forces always win out. Unfortunately, as in the past here and in many other countries, our elected officials fight and deny the benefits of these forces. Our politicians' legislative, regulatory and leadership actions make the process much more painful and longer than is necessary.

At 3/27/2009 12:52 PM, Anonymous Anonymous said...

In the 70s one could purchase a home worth 1.5x income. In the 80s it was 2x income. The affordability you are quoting is nearly 5x income. So the graph is probably not quoting apples to apples regarding real affordability. -- redbud in kansas

At 3/27/2009 1:28 PM, Anonymous Anonymous said...

As kind of a follow on to your iTunes post, this proposed "trade agreement" should give everyone pause.


While I am definitely in favor of copyright and patent enforcement, this is a bridge too far.

One wonders if this isn't some form of payback to Hollywood and the left for the aggressive support they gave Obama during the campaign.

At 3/28/2009 6:32 PM, Blogger Eldon Mast said...

Thanks Mark,

Another great post. I really enjoy your coverage of the housing market... indeed it looks like FL and CA started first into this dip and looks like they will be the first out...


At 3/30/2009 12:59 PM, Anonymous Anonymous said...

I wish it was credible. It isn't. NAR is a fraudulent organization that even helped create the RE bubble... issued repeated press releases saying there was no bubble throughout '06 and '07 and recommending that people buy now while they still could. What has happened now to all of the people who believed their lies? Then throughout '08 they worked tirelessly spinning false news releases using month/month data whenever it benefited rather than year/year. If they were regulated by the SEC some of NAR execs would be going to jail next year. Be careful listening to them.


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