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The Housing Affordability Index

A Historic Buying Opportunity?

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Understanding Today’s Housing Affordability

Affordability is at it’s Highest Level in Years

Several Mortgage and Housing Industry organizations measure housing affordability.

Two of the most popular measurements come from the National Association of REALTORS® (NAR) and the National Association of Home Builders® (NAHB).

The NAHB® has developed a Housing Opportunity Index (HOI)

The NAR® publishes the Housing Affordability Index (HAI)

Both indicate we are at or near record levels in terms of overall housing affordability.

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The NAR® Housing Affordability IndexA Simple Explanation

Essentially, the index is a measure of the financial ability of U.S. families to buy a house.

In simple terms, an index 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.

More information can be found at: www.Realtor.org/research

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The NAR® Housing Affordability IndexAt Near Record Levels

The index shows a very favorable relationship (well over 100) between home prices, mortgage rates and family income.

Recent and current index numbers are the most attractive since tracking began in 1970s.

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The NAHB® Housing Opportunity IndexA Simple Explanation

The HOI is also a measure of the financial ability of U.S. families to purchase a house.

It is the share of homes sold that were affordable to a family earning the median income, based on standard mortgage criteria.

Two major components -- Income and Housing Cost Income: Uses median family income estimates from

the Dept. of Housing & Urban Development and assumes a family can afford to spend 28% of gross income on housing.

Cost: Uses actual sales transactions and calculates payments based on a 30 year fixed mortgage, with 10% down at interest rates from the Federal Housing Finance Board. It includes estimated property taxes and insurance, but not mortgage insurance.

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The NAHB® Housing Opportunity IndexSays 65% of Families Can Afford a Home

The highest index since 1992 was reported in the 1st quarter of 2012 at 77.5 - It remains high in Q3 at 64.5 percent.

More information can be found at: www.nahb.org

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Mortgage Rates Remain LowCreating Opportunities for Buyers & Sellers

Similar to the affordability index trends, mortgage rates are also at historic low levels since the early 1970s.

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Even A Modest Increase in Rates Adds Up Over Time…

Going from 5.0% to 6.0% – adds cost of $22,582 over 30 years.

4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00% 6.25% 6.50% 6.75% 7.00%$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$0 $5,386

$10,849 $16,387

$21,997 $27,680

$33,431 $39,251

$45,138 $51,089

$57,102

Increase in Total Monthly Payments Over 30 YearsPer $100k Financed - - Shown for Each 0.25% Increase in

Rate

$22,582

The chart shows the impact of each 0.25% change for $100,000 financed over the life of a 30 year mortgage

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Summary

Both the HAI and HOI show Housing affordability at or near record levels.

The Freddie Mac® Mortgage Survey shows mortgage rates at the lowest on record since the early 1970s – This contributes to housing affordability by lowering monthly payments for buyers.

Even a modest increase in mortgage rates could cost buyers thousands of dollars over the life of a 30 year fixed mortgage.

The Bottom Line: This could be a historic opportunity to buy a new home.

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Thank You

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