Based on increasing home prices and the potential for mortgage rates to jump, some industry experts think that there will be a housing market slowdown through 2017. These experts are using the Housing Affordability Index as one of their data points, says the National Association of Realtors(NAR).
NAR describes the index:“The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national level based on the most recent price and income data.”
Essentially, the amount of 100 means a family bringing in a median income makes enough for a loan on a median-priced home. Amounts over 100 mean the family can afford more than a median-priced home.
The higher the index, the easier it is to afford a home.
Why the concern?
As home values have increased over the last couple of years the index has been declining. There are concerns that too many buyers will price out the market and create a housing market slowdown.
But, hold on…
Even though the index escalated between 2009 and 2013, during that time, the housing crisis was flooded with distressed properties (foreclosures and short sales). These distressed properties sold at major discounts, that’s when mortgage rates fell and prices dropped dramatically. Then, mortgage rates dropped like a rock..
The market is recovering, and values are coming back nicely. That has caused the index to fall.
If we get rid of the crisis years (shaded in gray) and view the current index, comparing it to the index from 1990-2008:
Even though prices and rates seem to be rising, we need to remember that affordability is made up of these three ingredients: home costs, interest rates, and income. Noting that incomes are finally rising, maybe there won’t be a housing market slowdown.
ATTOM Data Solutions has released their Q1 2017 U.S. Home Affordability Index. This report explained:
“Stronger wage growth is the silver lining in this report, outpacing home price growth in more than half of the markets for the first time since Q1 2012, when median home prices were still falling nationwide. If that pattern continues, it will help turn the tide in the eroding home affordability trend.”
Compared to historic norms, it is still a great time to buy from an affordability standpoint.
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