NAR reports increase in Housing Affordability Index

The major factors affecting housing affordability combined for the best showing in two years during the first quarter of 2001, according to a National Association of Realtors news release.

NAR's first-quarter composite Housing Affordability Index was 142.9, up 9.5 percentage points from 133.4 reported in the fourth quarter 2000.

This figure was 12.1 points higher than the same period a year earlier and the highest reading since the first quarter 1999, when it registered 143.3.

The index shows half the nation's households had at least 142.9 percent of the income needed to purchase a home at the first quarter median existing-home price, which was $139,700.

Median income

The 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 first-quarter median family income was $52,055.

Dr. David Lereah, NAR's chief economist, said rising family income and lower mortgage interest rates more than offset higher home prices.

"These conditions are pushing home sales close to historic highs, and are a major contributing factor in keeping the overall economy out of recession," he said.

NAR President Richard A. Mendenhall said that without adjusting for inflation, the actual price a typical family could afford has never been higher.

"In the first quarter, the median income family could afford a home costing $199,600, which is well above the national median price. This means most people in most of the country outside of the very expensive markets are in an excellent position to buy a home," Mendenhall said.

Interest decline

According to the Federal Housing Finance Board, the average effective mortgage interest rate for existing homes was 7.21 percent during the first quarter, down from 7.81 percent in the fourth quarter, compared to 8.02 percent in the first quarter 2000.

This is a weighed average interest rate between fixed and adjustable loans, including the cost of points, and represents a bottom-line mortgage cost.

Affordability for first-time home buyers also improved, rising 5.1 percentage points in the first quarter to 83.8; it was 5.7 percentage points above the first quarter 2000 index of 78.1.

National

The association's First-Time Homebuyer Affordability Index shows that a typical first-time-buyer household, age 25 to 44 with an income of $29,943, had 83.8 percent of the income needed to buy a typical starter home with a 10 percent down payment. The median starter home price was $118,700 during the first quarter.

Mendenhall said this doesn't mean renters can't afford to buy a home. "What this index tells us is that the typical entry-level buyer can afford a home costing $99,500 that's less than the national median price, but it's enough to make the transition from renter to some form of ownership in most of the country," he said.

"To put it in perspective, a year ago the typical first-time buyer could only afford a home costing $88,800 this is nearly an $11,000 increase in buying power," he added.

The National Association of Realtors is America's largest trade association, representing more than 760,000 members involved in all aspects of the residential and commercial real estate industries. Information about NAR is available at http://nar.realtor.com.