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New Home Affordability
Ratio
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. |
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|
 |
| MOST RECENT STATISTIC: |
58.5% |
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| GRADE: |
A+ |
| PERIOD COVERED: |
Sept. 2009 |
| Date Released: |
10/28/09 |
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|
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| Next Release: |
11/25/09 |
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|
|
|
09/09 |
08/09 |
07/09 |
09/08 |
09/07 |
|
| Fixed Index |
58.5% |
59.1% |
55.7% |
50.0% |
44.5% |
| ARM Index |
60.2% |
60.8% |
57.1% |
53.1% |
47.2% |
| Source:
Hanley Wood Market Intelligence |
Analysis for the Housing Market
By:
Ken Lee
The new home affordability ratio in September declined slightly from an all-time high last month due to a rise in median new home prices. The affordability ratio now stands at 58.5% compared to 59.1% in August and 50.0% in the same year-ago period. This is the first time new home affordability has posted a monthly decline since June.
Affordability based on a one-year ARM declined to 60.2% compared to 60.8% in August. Affordability based on a one-year ARM is still higher than it was this time last year when it was 53.1%. New home affordability based on a one-year ARM is also coming off an all-time high set last month in August.
The September figure illustrates that 60.2% of all households across the country could afford to purchase a new home at the median price of $204,800 when using a 20% down payment and a 30-year fixed rate mortgage with September's average fixed rate of 5.06%. Household income of $47,915 would be needed to qualify for the purchase of the median priced new home using a fixed rate mortgage, while an income of $46,050 would be needed to qualify using a 1-year adjustable rate mortgage at an average rate of 4.59%.
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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