ShareAt the national level, housing affordability fell in August compared to the previous month, according to NAR’s Housing Affordability Index. The monthly mortgage payment increased by 2.9% compared to the prior month, while the median price of single-family homes declined modestly by 0.8%. The monthly mortgage payment increased by $63 from last month.
Compared to one year ago, affordability fell in August as the monthly mortgage payment climbed 26.2% and median family income rose 4.7%. The effective 30-year fixed mortgage rate was 7.15% this August compared to 5.29% one year ago. Nationally, mortgage rates were up 186 basis points from one year ago (one percentage point equals 100 basis points). Mortgage rates moved above 7% for the first time since July 2001. The median existing-home sales price rose 3.7% from ($413,500) compared to one year ago ($398,800).
The national index is currently below 100, which means that the typical family cannot afford to buy based on the median-priced home. An index below 100 means that a family with a median income had less than the income required to afford a median-priced home. The income required to afford a mortgage, or the qualifying income, is the amount needed so that mortgage payments on a 30-year fixed mortgage loan with a 20% down payment account for 25% of family income. [1]The most affordable region was the Midwest, with an index value of 119.7 (median family income of $95,919 with a qualifying income of $80,160). The least affordable region remained the West, where the index was 66.3 (median family income of $107,168 and the qualifying income of $161,616). The South was the second most affordable region with an index of 93.2 (median family income of $90,451 and a qualifying income of $97,056). The Northeast was the second most unaffordable region with an index of 88.8 (median family income of $110,174 with a qualifying income of $124,128).
A mortgage is affordable if the mortgage payment (principal and interest) amounts to 25% or less of the family’s income.1
Housing affordability2 had double-digit declines from a year ago. The Midwest region has the most significant decline of 19.6%, followed by the Northeast with a dip of 19.1%. The South experienced a weakening in price growth of 16.4%, followed by the West, which fell 14.2%.
Affordability was down in all four regions from last month. The Northeast region had the most significant dip of 2.8%, followed by the South with a decline of 2.4%. The West region had a decrease of 1.5%, followed by the Midwest region had the smallest decline of 1.2%.
Compared to one year ago, the monthly mortgage payment rose to $2,234 from $1,770, an increase of 26.2%. A year ago, the monthly mortgage payment increased by $464. The annual mortgage payment as a percentage of income inclined to 27.3% this August from 22.6% a year ago. Regionally, the West has the highest mortgage payment to income share at 37.7% of income. The Northeast had the second-highest share at 28.2%, followed by the South with a share of 26.8%. The Midwest had the lowest mortgage payment as a percentage of income at 20.9%. Mortgage payments are not burdensome if they are no more than 25% of income.
This week, the Mortgage Bankers Association reported mortgage applications decreased 6.9% from one week earlier. Affordability in August is coming off three previous month lows, which would be the lowest since 1989. Incomes are not keeping pace with the qualifying factors for potential buyers to find home ownership affordable.
The Housing Affordability Index calculation assumes a 20% down payment and a 25% qualifying ratio (principal and interest payment to income). See further details on the methodology and assumptions behind the calculation.
1 Housing costs are burdensome if they take up more than 30% of income. The 25% share of mortgage payment to income considers that homeowners have additional expenses such as mortgage insurance, home insurance, taxes, and expenses for property maintenance.
2 A Home Affordability Index (HAI) value of 100 means that a family with a median income has exactly enough income to qualify for a mortgage on a median-priced home. An index of 120 signifies that a family earning the median income has 20% more than the level of income needed to pay the mortgage on a median-priced home, assuming a 20% down payment.
