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New Home Affordability
Ratio
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. |
|
|
 |
| MOST RECENT STATISTIC: |
61.6% |
|
|
| GRADE: |
A+ |
| PERIOD COVERED: |
July 2010 |
| Date Released: |
08/25/10 |
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|
|
| Next Release: |
09/24/10 |
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|
|
|
|
|
07/10 |
06/10 |
05/10 |
07/09 |
07/08 |
|
| Fixed Index |
61.6% |
58.3% |
55.8% |
56.0% |
46.1% |
| ARM Index |
64.4% |
61.5% |
58.9% |
57.4% |
50.5% |
| Source:
Hanley Wood Market Intelligence |
Analysis for the Housing Market
By:
Ken Lee
The new home affordability ratio in July increased from the previous month to 61.6% compared to 58.3% in June and 57.4% in the same year-ago period. This is the second straight month that new home affordability has increased. The new home affordability ratio is now at an all-time high due to falling home prices and record-low mortgage rates.
Affordability based on a one-year ARM increased to 64.4% compared to 61.5% in June. New home affordability based on a one-year ARM is also at an all-time high.
The July figure illustrates that 61.6% of all households across the country could afford to purchase a new home at the median price of $204,000 when using a 20% down payment and a 30-year fixed rate mortgage with July's average fixed rate of 4.56%. Household income of $45,754 would be needed to qualify for the purchase of the median priced new home using a fixed rate mortgage, while an income of $42,602 would be needed to qualify using a 1-year adjustable rate mortgage at an average rate of 3.73%.
Definitions and Importance for the Housing Market
By:
Ken Lee
The affordability ratio is the percentage of households that can afford the median priced new home. The calculation uses industry standards of a 20% down payment, a 1.83% property tax rate (average of the top 75 metro areas) and a 30-year fixed mortgage at the Freddie Mac mortgage rate published just prior to period end. We assume that total monthly payments, including mortgage, property taxes and mortgage 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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