Tuesday, March 17, 2009

Housing Affordability at Record High

OK, I am on vacation but blogging counts as relaxation, right?

The National Association of Realtors (NAR) recently released its latest Housing Affordability Index (HAI), showing that housing affordability reached an all-time, historic record high of 166.8 in January (see chart above). A HAI of 166.8 would mean that the typical household earning the median family income of $59,821 in January would have 166.8% of the qualifying income to purchase a median-priced existing single-family house ($169,900) with a 20% down payment, which would be the highest level of housing affordability since the NAR started reporting housing affordability in 1971 (see chart below).

Since mid-2006, the HAI has risen by more than 67 points, from 99.6 in July 2006 to 168.8. Stated differently, the annual qualifying income required to purchase a median-price house (with a 20% down payment) is only $35,856, with monthly payments based on a 5.21%, 30-year fixed-rate mortgage ($747.19 per month for principal and interest). Given the median family income of about $59,821, the typical family would have 166.8% of the income required to qualify for the mortgage to purchase the $169,900 home.

The historic surge in housing affordability to a new record-high will play an important role in the real estate market's recovery. Interestingly, the record-high level of housing affordability over the last several months has gone almost unreported by the media. The media seems trigger happy in its coverage of every possible bit of bad news about the real estate market and economy in general, but never covers some of the obvious, "mustard seed" signs of economic recovery, like record high housing affordability.

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