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Economy in Brief

Housing Affordability Declines in May as Falling Income Offsets Record Low Rates
by Gerald D. Cohen  July 10, 2020

• Housing affordability decreased in May from a four-year high in April.

• Falling incomes offset record low mortgage interest rates.

The National Association of Realtors reported that its Fixed Rate Mortgage Housing Affordability Index declined 1.3% to 169.4 in May (+12.3% year-on-year), from a four-year high in April.

Median family income, which is projected by the National Association of Realtors, dropped 2.6% in May (+ 4.1% y/y) after jumping 6.3% in April. The Bureau of Economic Analysis monthly personal income report for May showed falling government support programs offsetting rising compensation. The reverse happened in April. Meanwhile, the effective mortgage interest rate declined eight basis points to a record low 3.29% in May (data goes back to 1981). The median sales price, which was already reported last month, edged down 0.3% to $287,700. Putting this together, monthly principal and interest payments decreased to $1,007 raising the payment share of income to 14.8%.

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 an increasing number of buyers can qualify for a mortgage to purchase the median-priced home. Data on Home Affordability can be found in Haver's REALTOR database. Median sales prices are located in USECON. Higher frequency interest rate data can be found in SURVEYW, WEEKLY, and DAILY.

Housing Affordability May Apr Mar Y/Y% 2019 2018 2017
Fixed Rate Housing Affordability Index (100+ = Affordable) 169.4 171.7 162.1 12.3 157.6 147.9 159.1
  Payment as a Percent of Income 14.8 14.6 15.4 16.6 15.9 16.9 15.7
  Principal and Interest Payment ($) 1,007 1,020 1,016 -7.4 1,044 1,079 967
  Monthly Fixed Mortgage Rate (%)   3.29 3.37 3.51 4.11 4.04 4.72 4.20
  Median Family Income ($) 81,859 84,065 79,072 4.1 78,959 76,401 73,891
  Median Sales Price (Existing Single Family Home, $) 287,700 288,700 282,600 2.4 272,333 259,458 247,508
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