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Economy in Brief

U.S. Home Affordability Is Reduced by Higher Prices
by Tom Moeller  February 10, 2016

The National Association of Realtors reported that the Composite Index of Home Affordability declined 3.4% during December (-5.4% y/y). For all of 2015, affordability eased 1.1% following a 6.3% drop in 2014. During the last ten years, there has been a 62% correlation between the affordability index level and the y/y change in new plus existing single-family home sales.

Mortgage payments as a percent of income rose slightly to 15.5% by the end of last year. A 2.1% rise in home prices during December caused the erosion in home affordability. Full-year home prices showed strength for the fourth straight year, rising 6.9% in 2015. The average mortgage rate nudged up in December to 4.14% though the full-year average of 4.03% was below the 4.30% averaged in 2014.

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.

The Monetary Policy Report from the Federal Reserve Board can be found here.

Housing Affordability Dec Nov Oct Dec Y/Y 2015 2014 2013
Composite Index 161.7 167.4 166.7 -5.4% 163.9 165.8 176.9
  Median Sales Price (Existing Single Fam. Home) $226,000 $221,400 $220,600 8.0% $221,442 $207,125 $195,933
  Monthly Mortgage Rate   4.14% 4.01% 4.05% 4.2% 4.03% 4.30% 4.00%
  Principal and Interest Payment $878 $847 $848 7.7% $849 $820 $750
  Median Family Income $68,163 $68,074 $67,865 1.9% $67,507 $65,910 $64,030
  Payment as a Percent of Income 15.5 14.9 15.0 14.6 15.1 14.9 14.0
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