Buying a home is more affordable now than at any point in the past three decades, data from the National Association of Realtors shows.
Based on the relationship between median home price, median family income, and average mortgage interest rates, NAR’s Housing Affordability Index rose to its highest point ever during the first quarter of 2012.
“For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present,” said NAR President Moe Veissi. “Although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means. This is especially true for self-employed buyers.”
More homes would sell if lending standards returned to normal, he added.
During the first quarter, the median-income family earned just under $61,000, so they could afford a $325,500 home. That’s more than double the national median existing single-family home price of $158,100. The median monthly mortgage principal and interest payment for a median-priced home would take only 13.5% of total (gross) income.
A companion index measuring the ability of first-time buyers to purchase a home also set a record. That index assumes a first-time buyer will earn 65% of median family income, and will buy a starter home costing 85% of the median price with a downpayment of 10%. Using those standards, the typical entry-level buyer could afford a home costing $182,500, which is well above the overall median price.
“It’s never been easy to buy a first home because of the cash required for downpayment and closing costs, but conditions for first-time buyers who are able to get a mortgage have never been better,” Veissi explained.
Most first-time buyers choose a loan with a lower downpayment, often an FHA-insured loan with 3.5% down, and some use the VA program with no downpayment.
Both home prices and mortgage interest rates are expected to edge up modestly as the year progresses, but housing affordability will remain very favorable with the median-income household well positioned to afford a median-priced home, NAR economists predict.