Latest Housing Affordability Data

These are the latest affordability numbers from the National Association of Realtors. They don’t incorporate the tightening of loan underwriting guidelines due to the new Dodd Frank regulations that are just now starting to be imposed on mortgages, but it does give a good indication on how the increase in interest rates and housing values are effecting the affordability factors.
Ron Henderson

National Association of Realtors November 21, 2013

• Housing affordability is up for the month of September in the US and 3 of 4 regions as prices eased seasonally from August.  The median single-family home price is down roughly 5 percent from last month even as August marks tenth consecutive month of double-digit year-over-year price gains for single-family homes.
• This easing of prices helped boost the affordability index 6 points from a month ago nationally and boosted the index by 8 points from what it might have been if the price level in August were combined with September’s mortgage rates and income.
• Because home prices remained roughly steady in the West, it was the only region not to see a boost in affordability from August to September.
• Mortgage rates, while still climbing, slowed from the nearly half and quarter point jumps seen in July and August.  Mortgage rates were up 12 basis points from August and 85 basis points from September a year ago.  At current prices and with a 20 percent down payment, the rise in rates means roughly $12 extra in a monthly mortgage payment from a month ago and roughly $79 more than a year ago.
• While incomes continue to rise, they are not keeping pace with home price gains and mortgage rate increases from a year ago.   Nationally, affordability is down from 198.4 in September 2012 to 164.3 in September 2013.  Affordability is also down from a year ago in all 4 regions, and coincides with rising prices.  The biggest drop in affordability has been in the West followed by the South, Midwest, and Northeast.  September prices were up 16 percent in the West from a year ago while they show a gain of only 1 percent in the Northeast from September 2012.
• This slight easing of affordability is welcome for potential buyers, but uncertainty remains.  While rates have eased slightly in response to confirmation hearings for Janet Yellen, the current nominee for Chairwoman of the Federal Reserve, the Federal Reserve has committed to pushing rates higher as needed to stanch inflation as the economy improves.  The Fed has a tricky balancing act ahead, and assuming the forecast economic improvement finally materializes the trajectory for rates in the future is higher.  If prices hold steady, the long run trend for housing affordability will be lower.