NAR reports dip in affordability index

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Home sales rates have not been affected by |ret||ret||tab|

the drop in Americans' ability to buy houses|ret||ret||tab|

The ability of the typical American family to buy a median-priced existing home dipped slightly during the first quarter of 2000 compared to a year ago, according to the National Association of Realtors. |ret||ret||tab|

An NAR release stated that the association's composite Housing Affordability Index was 131.8 during the first quarter, down from 134.8 reported in the fourth quarter of 1999. The first-quarter index is 13.8 points below the same period a year earlier when it stood at 145.6. |ret||ret||tab|

The index shows half the nation's households had at least 131.8 percent of the income needed to purchase a home at the first-quarter median existing-home price, which was $133,400. This index measures affordability factors for all home buyers making a 20 percent downpayment, 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, NAR stated. |ret||ret||tab|

NAR President Dennis R. Cronk said in the release that the drop in the affordability index is a natural response to rising interest rates. However the housing market remains healthy, he added. |ret||ret||tab|

"Even with mortgage interest rates creeping higher in the first quarter, a family earning the U.S. median income could afford a home costing $175,800 well above the median price," he said. |ret||ret||tab|

"While no one likes to see a decline in affordability conditions, consumers still, especially in light of the recent turbulence in the stock market, realize that homeownership is a solid investment for their future," Cronk said. |ret||ret||tab|

According to NAR, the median family income was $49,616 during the quarter. |ret||ret||tab|

Dr. Fred Flick, vice president of economic research for NAR, said the dip in affordability conditions has not appeared to impact the vitality of the current housing market. |ret||ret||tab|

"Despite rising rates, consumers are out there buying homes. If anything, the lack of inventory throughout the market indicates demand for homeownership is stronger than ever," Flick said. "Slight rises in incomes, coupled with a small decline in median sales prices in many areas also have helped to keep the housing market healthy and affordable." |ret||ret||tab|

According to the Federal Housing Finance Board, the average effective mortgage interest rate for existing homes was 8.02 percent during the first quarter, up from 7.66 percent in the fourth quarter. It was 6.95 percent in the first quarter of 1999. This is a weighted average interest rate between fixed and adjustable loans, including the cost of points, and represents a bottom-line mortgage cost. |ret||ret||tab|

At the same time, the association's First-Time Homebuyer Affordability Index dropped 2 percentage points to 77.9 in the first quarter. This index shows a typical first-time buyer household, age 25 to 44, had 77.9 percent of the income needed to purchase a typical starter home, which cost $113,400 during the first quarter. |ret||ret||tab|

The typical first-time buyer, earning $29,062, could afford a home costing $88,300 during the first quarter. |ret||ret||tab|

"First-time buyers with good credit in many areas of the country are in pretty good shape, but in higher cost markets they may have to lower their sights or consider adjustable-rate mortgages," Cronk said. |ret||ret||tab|

"Still, there is a large affordability gap that exists between first-time buyers and move-ups," he added. |ret||ret||tab|

According to NAR, in the first quarter of 2000, the affordability gap between first-time buyers and move-ups remained relatively unchanged at 40.8 percent, compared to the previous quarter.|ret||ret||tab|

The National Association of Realtors is America's largest trade association, representing more than 750,000 members involved in the residential and commercial real estate industries.|ret||ret||tab|

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