Housing Affordability Slightly Dips in October 2019

At the national level, housing affordability conditions improved in October 2019 compared to last a year ago but slightly fell compared to September, according to NAR’s Housing Affordability Index. Median home prices rose 4.6% percent in October from one year ago. The effective 30-year fixed mortgage rate¹ also slightly rose to 3.74% this October from 3.65% in September although mortgage rates are still lower compared to the year-ago level of 4.88%.

As of October 2019, the national and regional indices were all above 100, meaning that a family with the median income had more than the income required to afford a median-priced home. The income required to afford a mortgage, or the qualifying income, is the income needed so that mortgage payments make up no more than 25% of family income. The most affordable region was the Midwest, with an index value of 208.2 (median family income of $78,249 is almost twice the qualifying income of $37,584). The least affordable region remained the West, where the index was 115.5 (median family income of $85,136 is 1.15x the qualifying income of $73,728) . For comparison, the index was 169.5 in the South (median family income of $72,403 is 1.69x the qualifying income of $42,720) and 169.5 in the Northeast (median family income of $90,001 is 1.69 x the qualifying income of $53,088).

Housing affordability² increased from a year ago in all four regions.

However, with home prices rising faster than income, affordability is down from last month in three of the four regions.

Nationally, mortgage rates were down 114 basis points from one year ago (one percentage point equals 100 basis points). The median sales price for a single-family home sold in October in the US was $273,600, up 6.2% from a year ago, while median family incomes rose 3.3 % in 2019 from one year ago.

With lower mortgage rates compared to one year ago, the payment as a percentage of income fell to 15.3% this October from  17% from a year ago. Regionally, the West has the highest mortgage payment to income share at 21.7% of income. The South had the second highest share at 14.8% followed by the Northeast at 14.7%. The Midwest had the lowest mortgage payment as a percentage of income at 12.0%. However, payment as a percentage of income slightly rose in October from September.

An uptick in housing permits will bring more housing inventory to the market which will help slow price growth. This week the MBA reported mortgage applications decreased 5.0% from last week. Mortgage applications for new homes inclined 27.1 in November 2019 compared to a year ago.   

What does housing affordability look like in your market? View the full data release.

The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principal and interest payment to income). See further details on the methodology and assumptions behind the calculation.

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¹ Starting in May 2019, FHFA discontinued the release of several mortgage rates and only published an adjustable rate mortgage called PMMS+ based on Freddie Mac Primary Mortgage Market Survey.  With these changes, NAR discontinued the release of the HAI Composite Index (based on 30-year fixed rate and ARM) and starting in May 2019 only releases the HAI based on a 30-year mortgage. NAR calculates the 30-year effective fixed rate based on Freddie Mac's 30-year fixed mortgage contract rate, 30-year fixed mortgage points and fees, and a median loan value based on the NAR median price and a 20 percent down payment.

² A Home Affordability Index (HAI) value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index of 120 signifies that a family earning the median income has 20 percent more than the level of income needed pay the mortgage on a median-priced home, assuming a 20 percent down payment so that the monthly payment and interest will not exceed 25 percent of this level of income (qualifying income).