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Economy in Brief

U.S. Homebuyers Index Reaches New High In 2012
by Tom Moeller  February 11, 2013

First-time homebuyers saw three necessary ingredients for a favorable buying environment in 2012; low prices, lower interest rates and lower monthly payments. The National Association of Homebuilders reported that their Composite Index of First-time Homebuyer Affordability rose to 132.0, the highest reading on record which extends back to 1981. For the year, the index stood at 129.2.

Moderate home pricing has been instrumental in raising affordability for first-time homebuyers. Home prices for all of 2012 were 20.8% below the peak averaged during 2006. Most recently, however, the home-pricing environment has improved. The average price paid by first-time buyers last quarter was $152,000, up 10.1% y/y. For the year as a whole, the average price rose 6.6% to $149,425.

Recent pricing gains have been offset by other factors to improve affordability. Lower financing costs led the way. For last year on average, the effective interest rate paid fell to 3.83% and was down to 3.50% by yearend. For perspective, these rates compare to 15.38% averaged in 1982. Moderate pricing and lower interest rates reduced the monthly payment to $648, the lowest since 1994. Also helping buyers to make purchases, median incomes rose to $40,156 and were nearly back to the 2008 high.

Housing Affordability compares the hypothetical mortgage payment on a median priced house to median household income. An index of 100 means this "median" payment is equal to the amount of income necessary to meet traditional loan quality standards. The first-time homebuyers data can be found in Haver's REALTOR database.

Why Did Young Families Lose So Much Wealth During the Crisis? The Role of Homeownership from the Federal Reserve Bank of St. Louis can be found here.

 

NAR Housing Affordability Q4'12 Q3'12 Q2'12 Y/Y 2012 2011 2010
First-time Homebuyers Affordability Index 132.0 124.6 123.5 131.3 129.2 123.5 114.8
  Starter Home Price $152,100 $156,700 $154,100 $139,200 $149,425 $140,200 $146,800
  Effective Interest Rate 3.50% 3.72% 3.92% 4.31% 3.83% 4.67% 4.39%
  Monthly Payment $634 $671 $676 $635 $648 $672 $721
All Home Buyers Affordability Index 200.4 189.1 187.4 199.2 196.1 188.0 172.6
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