Housing Affordability Hits New Highs

 

Mansfield, Ohio

The two oldest indexes on housing affordability have reached new highs, indicating low interest rates, lower home prices and the first time home buyers tax credit are improving sales.

Lower housing prices have produced a rush of cash strapped investors to purchase homes and are knocking out many first time buyers, who are trying to make their purchases with mortgages.

The National Association of Realtors index reached its highest level since the trade group started tracking first time home buyers affordability in 1970, and the National Association of Home Builders Index (HOI) that began 18 years ago has reached its healthiest level since the index started. The Realtors index hit a 19-year low in 2006 at the peak of the boom.

The indexes measure whether a family earning the median income for an area qualifies for a conventional mortgage on a median-priced home. The home builders’ index showed that 72.3% of all new and existing homes sold in the second quarter were affordable for families earning the median income of $64,000 down from a record high 72.5% in the first quarter of the year.

“The increase in affordability along with the $8,000 federal tax credit for home buyers is stimulating demand, particularly among young, first time buyers,” said NAHB Chairman Joe Robson, a home builder in Tulsa, Oklahoma. “But to keep the recent upturn in home sales going into next year Congress will need to extend the tax credit for another year, and make it available to all buyers in an effort to encourage activity in the trade-up market.”

A full rebound of the housing market may take years to develop as bankers and White House officials work on a plan to at least cut down the record number of foreclosures.

However affordability is measured, housing prices in the last 20 years in Montana, which was one of the last states’ to see its housing markets deteriorate have surged ahead faster than incomes. The median price of a Montana home inflated 96 percent over the two decades to keep well ahead of inflation, while incomes grew an average of only 26%.

Indianapolis was the most affordable major housing market in the nation in the home builders study in the second quarter. Nearly 95% of homes sold were affordable, according to the survey. The Motor City has now topped the affordability list 16 straight quarters.

Other major metropolitan areas near the top of the list include Youngstown, Ohio, Detroit, Michigan, Dayton, Ohio and Grand Rapids, Michigan.

Nearly 98% of home sales in the second quarter were affordable to median income earners in smaller less urban settings, including Lansing, Mich.; Mansfield, Ohio; Elkhart, Ind.; Lima, Ohio; and Bay City, Mich. White Plains, New York was the least affordable major housing market in the country with just 21% of all new homes sold meeting the affordability level.