What is the affordability index and why should I care?

hffimageEvery month since 1970, the National Association of Realtors (NAR) puts out the Housing Affordability Index (HAI), which is pretty much what it sounds like: how affordable buying a median-priced house is to a family of median income. The HAI uses housing prices, mortgage interest rates, and median income to rate affordability on a numeric scale.

A rating of 100 means that a typical family will qualify for a loan that allows them to buy a typical home, assuming a 20 percent down payment and that principal and interest payments are one quarter of the total family income. Since 2013, the average rating has been near 165.

Why should I care?
This index tells you whether a typical family can qualify to purchase a mortgage for a typical home – and whether you’re buying or selling that’s pretty important.

As a buyer, the HAI helps you keep an eye on the housing market in a relatively straightforward, simplified way. When the index rises above 100 more people can afford to buy a new home. In July of this year, the HAI was 160.6, which means that the typical family made 160.6 percent of the income needed to qualify for a mortgage to purchase a median-priced home.

For you this indicates several things, if your income is near the median as reported on NAR’s HAI:

  • You will most likely qualify for a loan.
  • You can calculate a quarter of your yearly income to help determine approximately how much you want to spend.
  • Lots of other people also qualify, so housing could get more expensive and less available very soon.

As a seller this means that more people are able to afford your asking price and, if you’re in a tight market with few desirable homes available, you may even be able to receive more than your asking price or spark a bidding war.

The Bottom line
Basically, homes are very affordable right now; despite rises in home prices, low mortgage rates keep the affordability index high. If you want to become a homeowner, now is the time to make your move, before mortgage rates rise. Sellers will have a chance to maximize their profit in low-inventory areas.

Whatever your circumstances, I’m here to help. I can review your finances to see if you are positioned to get the most out of today’s housing market. I look forward to assisting you!


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