Housing affordability reaches record in first quarter

Housing affordability reaches record in first quarter

WASHINGTON – May 17, 2012 – Housing affordability reached a milestone in the first quarter, according to the National Association of Realtors® (NAR).



NAR’s composite quarterly Housing Affordability Index rose to a record high of 205.9 in the first quarter of 2012. The Index provides a quick look at affordability and is calculated by the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power.



The first quarter marks the first time the quarterly index broke the 200 mark since NAR recordkeeping began in 1970.



“For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present,” says NAR President Moe Veissi, broker-owner of Veissi & Associates Inc. in Miami and 2002 president of Florida Realtors.



Veissi thinks things could be even better if lending standards would return to normal.



“Although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means,” he says. “This is especially true for self-employed buyers.”



The index finds that a median-income family, earning just under $61,000, could afford a home costing $325,500 in the first quarter – more than double the national median existing single-family home price of $158,100. The median monthly mortgage principal and interest payment for a median-priced home would take only 13.5 percent of gross income.



A companion index measuring the ability of first-time buyers to purchase a home also set a record, with the first-time buyer index reaching 135.8 in the first quarter. Assumptions for the first-time buyer index include a lower income, at 65 percent of median family income, a starter home costing 85 percent of the median price, and a downpayment of 10 percent. In the first quarter, the typical entry-level buyer could afford a home costing $182,500, which is well above the overall median price.



“It’s never been easy to buy a first home because of the cash required for downpayment and closing costs, but conditions for first-time buyers who are able to get a mortgage have never been better,” Veissi says.



Most first-time buyers choose a loan with a lower downpayment, often an FHA-insured loan with 3.5 percent down, and some use the VA program with no downpayment.



Both home prices and mortgage interest rates are expected to edge up modestly as the year progresses, but housing affordability will remain very favorable with the median-income household well positioned to afford a median-priced home. For all of 2012, the index is projected to set an annual record, averaging 191 for the year.



© 2012 Florida Realtors®