IN 1972! Remember that? You could buy the Brady’s home for just under $30,000, you only had to pay Alice about $3,000 a year, your Corvette Stingray cost just $5,400 and you could fill the tank for $.55 a gallon! Everything was so affordable then right? Hmmm, time to flash back to 2009 and guess what? Housing is more affordable now than it was back then! Yes you heard right! The National Association of Realtors (NAR) has been producing the “Housing Affordability Index” since 1970. The HAI, a broad index of affordability using consistent values and assumptions over time, shows that the relationship between home prices, mortgage interest rates and family income is the most favorable since tracking began in 1970. Since that time the second most affordable time to buy a home (after right now) was way back in 1972. That was 37 years ago!
The NATIONAL ASSOCIATION OF REALTORS® affordability index measures whether or not a typical family could qualify for a mortgage loan on a typical home. A typical home is defined as the national median-priced, existing single-family home as calculated by the NAR. The typical family is defined as one earning the median family income as reported by the U.S. Bureau of the Census. The prevailing mortgage interest rate is the effective rate on loans closed on existing homes from the Federal Housing Finance Board and HSH Associates, Butler, N.J. These components are used to determine if the median income family can qualify for a mortgage on a typical home.
To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. For example, a composite HAI of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the HAI, then, shows that this family is more able to afford the median priced home.
The calculation assumes a down payment of 20 percent of the home price and it assumes a qualifying ratio of 25 percent. That means the monthly P&I payment cannot exceed 25 percent of a median family’s monthly income.
Here are the national numbers for January 2009. Median home price: $169,900, Median income: $59,821, prevailing mortgage interest rate: 5.03%. This yields an HAI of 167; that’s affordable! To give you some perspective the HAI in March of 2006 was 111, March 03 was 148, March 1981 was 71.1 – YEOW!! To view the charts from NAR, click here.
This affordability of course, is due to a drop in home prices and interest rates. With the drop in interest rates, a median-income family can afford a home costing $20,000 more than a year ago for the same monthly mortgage payment; yet at the same time median home prices have fallen over $27,000 during the same period! Now really is a great time to buy a home!
I know most of you are in Okaloosa County Florida and are thinking “Yeah, that’s a national number though. What about here?” Believe it or not, the numbers are even better than they are nationally! Let’s look at the local numbers for January 2009. Median home price: $185,000, median income: $68,494, prevailing mortgage interest rate: 5.03%. That yields an HAI of 179! That means the median family has 179% of the income necessary to qualify for the median home in Okaloosa County!
A big part of this affordability comes from reduced interest rates. This means a refinance may be appropriate for you, especially if you have an interest rate of 6.00% or more! Are you thinking of buying a home? Now’s the time – call me and we’ll talk more about all of this!
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