Southeastern Evaluation Blog

6 of 10 Homes Still Affordable
Southeastern Evaluation Team

Since the beginning of the year, six in 10 U.S. homes were considered “affordable” to households earning the national medium income (currently $55,775). This is based on a standard 30-year conventional mortgage, good credit scores and a modest down payment according to the National Association of Home Builders (NAHB) Housing Opportunity Index (HOI).

Rising affordability is not what was expected and may be good news for the mortgage industry in the coming months. Mortgage rates experienced the fastest one-quarter rise since 2013 rising faster than any time in the past 12 years. Rising rates often foretell a drop in affordability. Instead, affordability improved.

According to the HOI, 60.3% of all U.S. homes are affordable for typical buyers.

The HOI is a quarterly “gauge” of home affordability which tracks a typical household’s ability to purchase the typical home. Data is collected across more than 225 metropolitan areas.

In general, the index shows that homes are still as affordable as they were during 2016 despite a sharp rise in mortgage rates earlier this year.

Mortgage rates climbed to 4.33% in 2017 from 2.84% at the end of 2016 – a nearly half-point increase in three months. While rates rose, housing prices remained mostly consistent. Last quarter the medium home price was $245,000 compared to a medium price of $250,000 the previous quarter.

If 2017 stays consistent with last year, the second quarter medium home price should rise to $265,000 and perhaps put some pressure on affordability. If so, affordability could dip into the mid-50s percent but remain relatively affordable.

Last quarter was the 37th in a row (more than 9 years) in which the index has come in above 50, the mark at which the housing market is considered affordable.

The NAHB gathers three pieces of date to determine affordability. These are:

  • Medium home price nationwide,
  • Average 30-year fixed mortgage rates, and
  • Medium household monthly income.

An “affordable” home is one for which the mortgage loan debt-to income ratio is 20% or less of the area’s medium household income calculated as total mortgage payment divided by total monthly income.

Indications are that housing prices are now rising. How this affects future affordability remains to be seen. In any case, signs continue to look promising for the mortgage industry throughout 2017.