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Economy in Brief

U.S. Home Affordability Depressed Both by Higher Mortgage Rates and Home Prices
by Tom Moeller  October 4, 2013

The National Association of Realtors reported that during August, its Housing Affordability Composite Index fell to 156.1 from 160.7 during July. The Affordability Index reached a peak of 213.6 in January when average mortgage interest rates were near their nadir at 3.4%. Depressing affordability has been the rise in rates on a 30-year mortgage to 4.4% in August. They've since risen to 4.6% then tailed off.

Also depressing home affordability this year has been a jump in the median home sales price. It peaked at $214,600 this past June, an increase of 19.0% since the end of last year. Since then, prices have tailed off by 1.1% to an average $212,200. Still, higher interest rates and firm prices combined to raise the average monthly mortgage payment to $851 in August, up more than one-third from the January low of $612.

Homebuyers have had to stretch the family budget to make these higher payments. If homebuyers were to make the higher mortgage payments for twelve months, it would leave them paying 16.0% of their income to service the mortgage, up from 11.7% as of January.

So far, the home sales market has weathered this storm of higher costs. Sales of new and existing homes totaled 5.901 million (AR) in August, up 11.4% since the end of 2012 and 13.2% since August of last year. Perhaps buyers keep stretching their budgets now in fear of facing yet higher costs in the future. Perhaps an investment opportunity is seen where none existed before. Either way, real estate agents are busy at the moment.

The Housing Affordability Index equals 100 when median family income qualifies for an 80% mortgage on a median priced existing single-family home. A rising index indicates more buyers can afford to enter the home-buying market. Data on Home Affordability can be found in Haver's REALTOR database. Interest rate data can be found in the WEEKLY and DAILY databases.

Housing Affordability Aug Jul Jun Y/Y 2012 2011 2010
Composite Index 156.1 160.7 168.5 -18.2 197.4 188.0 172.6
  Median Sales Price (Existing Single Fam. Home) $212,200 $213,000 $214,600 14.4% $175,783 $164,933 $174,742
  Monthly Mortgage Rate   4.41% 4.13% 3.67% 3.70% 3.83% 4.67% 4.89%
  Principal and Interest Payment $851 $826 $787 $683 $657 $682 $733
  Median Family Income $63,783 $63,723 $63,634 $62,555 $62,088 $61,455 $60,609
  Payment as a Percent of Income 16.0 15.6 14.8 13.1 12.7 13.3 14.5
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