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Existing Home Affordability
Index
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. |
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 |
| MOST RECENT STATISTIC: |
65.0% |
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| GRADE: |
A+ |
| PERIOD COVERED: |
Sept. 2009 |
| Date Released: |
10/23/09 |
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| Next Release: |
11/23/09 |
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09/09 |
08/09 |
07/09 |
09/08 |
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|
|
| Fixed Index |
65.0% |
64.0% |
63.0% |
56.8% |
|
| ARM Index |
66.4% |
65.5% |
64.3% |
60.1% |
|
| Source:
Hanley Wood Market Intelligence |
Analysis for the Housing Market
By:Ken Lee
The affordability ratio for existing homes in September increased for the third straight month due to falling mortgage rates and lower prices. Affordability based on 30-year fixed mortgage rates increased to 65.0% in September from a reading of 64.0% in August. The existing home affordability ratio is now back to its highest levels since May. Compared to the same time last year, the affordability ratio is up 8.2 percentage points from the 56.8% recorded in September 2008.
Affordability based on an one-year treasury indexed ARM increased from the previous month to 66.4% from 65.5% in August.
The ratio indicates that 65.0 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 September. In September, a household needed a minimum annual income of $40,919 to afford the median priced existing home with a 30-year fixed rate loan and $39,327 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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