Housing affordability index slips, but still healthy

Housing affordability conditions slipped in the second quarter but remain at fairly high levels, according to a National Association of Realtors news release.

NAR's composite Housing Afford-ability Index was 138.2 during the second quarter, down 4.7 percentage points from 142.9 reported in the first quarter, which was a two-year high. However, the index remained 11.8 points higher than the same period a year earlier when it stood at 126.4.

The index shows that half of the nation's households had at least 138.2 percent of the income needed to purchase a home at the second quarter median existing-home price of $146,900. This index measures affordability factors for all home buyers making a 20 percent down payment, with an index of 100 defined as the point where a median-income family has the exact amount of income needed to purchase a median-priced existing home. The second-quarter median family income was estimated to be $52,675.

David Lereah, NAR's chief economist, said a slight erosion in affordability conditions was expected. "Essentially, higher home prices offset a modest decline in mortgage interest rates and higher family income," he said. "Even so, the index shows a median-income family could afford a home costing $203,000, which is $56,100 higher than the national median existing-home price."

According to the Federal Housing Finance Board, the average effective mortgage interest rate for existing homes was 7.15 percent during the second quarter, down from 7.21 percent the first quarter. This is a weighed average interest rate between fixed and adjustable loans, including the cost of points, and represents a bottom-line mortgage cost.

NAR President Richard A. Menden-hall said affordability conditions remain favorable but vary by region and by type of home buyer. "The housing affordability index is still at a very high level, with the median-income family able to purchase a home that costs more than the median price in most of the country. However, there are problems in high cost markets, especially for first-time home buyers, he said.

Affordability for first-time home buyers declined 3 percentage points in the second quarter to an index of 80.8, but was 5.5 percentage points above the second quarter 2000 index of 75.3.

The association's First-Time Home-buyer Affordability Index shows a typical first-time buyer household, aged 25 to 44 with an income of $30,189, had 80.8 percent of the income needed to purchase a typical starter home with a 10 percent down payment. The median starter home price was $124,900, during the second quarter.

The index shows a typical entry-level buyer can afford a home costing $100,900.

"What this means is first-time buyers are in a fairly good position as far as starter housing in the more affordable regions of the Midwest and South, as well as some inland areas of the West and Northeast," Mendenhall said. "The problem remains largely in the high-cost markets on either coast, where programs for first-time buyers are extremely important," he added.