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Existing Home Affordability
Index
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 |
| MOST RECENT STATISTIC: |
64.6% |
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| GRADE: |
A+ |
| PERIOD COVERED: |
Dec. 2009 |
| Date Released: |
01/25/10 |
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| Next Release: |
02/26/10 |
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12/09 |
11/09 |
10/09 |
12/08 |
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| Fixed Index |
64.6% |
66.6% |
65.9% |
63.0% |
|
| ARM Index |
66.6% |
68.0% |
67.1% |
64.1% |
|
| Source:
Hanley Wood Market Intelligence |
Analysis for the Housing Market
By:Ken Lee
The affordability ratio for existing homes in December recorded its first monthly drop since June due to higher prices and slightly higher mortgage rates. Affordability based on 30-year fixed mortgage rates fell to 64.6% in December from an upwardly revised reading of 66.6% in November. After reaching its highest levels since April last month, the existing home affordability ratio is now back down to its lowest levels since August. Compared to the same time last year, the affordability ratio is up 1.6 percentage points from the 63.0% recorded in December 2008.
Affordability based on an one-year treasury indexed ARM declined from the previous month to 66.6% from 68.0% in November.
The ratio indicates that 64.6 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 December. In December, a household needed a minimum annual income of $41,262 to afford the median priced existing home with a 30-year fixed rate loan and $39,145 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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