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Existing Home Affordability
Index
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. |
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 |
| MOST RECENT STATISTIC: |
65.9% |
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| GRADE: |
A+ |
| PERIOD COVERED: |
July 2010 |
| Date Released: |
08/24/10 |
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| Next Release: |
09/23/10 |
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07/10 |
06/10 |
05/10 |
07/09 |
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| Fixed Index |
65.9% |
65.3% |
66.5% |
63.0% |
|
| ARM Index |
68.4% |
68.0% |
69.1% |
64.4% |
|
| Source:
Hanley Wood Market Intelligence |
Analysis for the Housing Market
By:Ken Lee
The affordability ratio for existing homes increased in June due to lower mortgage rates and a slight decline in prices. Affordability based on 30-year fixed mortgage rates increased to 65.9% in July from a reading of 65.3% in June. The existing home affordability ratio remains at historically high levels. The existing home affordability ratio is also higher than it was this time last year when it stood at 63.0%.
Affordability based on a one-year treasury indexed ARM increased from the previous month to 68.4% from 68.0% in June. This is the first increase for the existing home affordability ratio based on a one-year ARM since February.
The ratio indicates that 65.9 percent of the nation’s households with 30 percent of their income going towards housing expenses can afford the median priced existing home, assuming a 20% down payment, and a 30-year fixed mortgage based on average rates in July. In July, a household needed a minimum annual income of $40,954 to afford the median priced existing home with a 30-year fixed rate loan and $38,133 if they were to finance their purchase using a 1-year ARM.
Definitions and Importance for the Housing Market
By:Ken Lee
The affordability ratio is the percentage of households that can afford the median priced existing home. The calculation uses industry standards of a 20% down payment, a 30-year fixed mortgage at the Freddie Mac mortgage rates published just prior to period end, and a 1.83% average U.S. property tax rate (the average of the top 75 metro areas). It is assumed that total monthly payments (including mortgage, property taxes and insurance) cannot exceed 30% of gross household income. Income information was obtained from Claritas Inc.
Because information on the percentage of borrowers who can put 20% down is not available, an exact affordability ratio cannot be calculated. A 10% downpayment assumption reduces affordability by at least 5%.
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