According to current statistics, 2012 will clearly go down as a
record year for favorable housing affordability conditions, and a great
year for buyers who could get a mortgage, according to the National
Association of REALTORS®.
NAR’s national Housing Affordability Index stood at 198.2 in
November, based on the relationship between median home price, median
family income and average mortgage interest rate. The higher the index,
the greater the household purchasing power; record keeping began in 1970.
An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase
of a median-priced existing single-family home, assuming a 20 percent
down payment and 25 percent of gross income devoted to mortgage
principal and interest payments. For first-time buyers making small down
payments, the affordability levels are relatively lower.
For all of 2012, NAR projects the housing affordability index to be a
record high 194, up from 186 in 2011, which was the previous record.
November’s reading was 2.5 index points below October, but up 1.5 index
points from a year earlier.
Lawrence Yun, NAR chief economist, said home buyers are able to stay
well within their means. “Although 2012 was highest on record, the
excessively tight underwriting precluded many would-be homebuyers from
locking-in generational low interest rates,” he says. “Rising home
prices and a gradual uptrend in mortgage interest rates will offset
improvements in family income, but 2013 likely will be the third best on
record in terms of household buying power. A window of opportunity
remains open for buyers who can qualify for a mortgage.”
NAR projects the housing affordability index to average 160 during
2013, which means on a national basis that a median-income family would
have 160 percent of the income needed to purchase a median-priced
existing single-family home. Conditions vary widely, with the highest
buying power in the Midwest. Even in the West, where the regional index
is lower, they typical family is well positioned in most markets.
NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa
Park, Calif., says the minor erosion in affordability conditions moving
forward could be mitigated by bank and regulatory policies. “Clearer
rules from the government regarding future lawsuits and buybacks of
Fannie and Freddie loans could encourage banks to use their massive cash
holdings to originate more loans,” he says. “A more sensible lending environment that makes it easier for other
financially qualified buyers to get a mortgage would allow many more
households to enter the market, boosting home sales as much as 10 to 15
percent,” Thomas says.
The National Association of REALTORS®, “The Voice for Real Estate,”
is America’s largest trade association, representing 1 million members
involved in all aspects of the residential and commercial real estate
industries.
For more information, visit www.realtor.org [2].