Affordability of Homes Near 20-Year High

Although rising mortgage rates narrowed the typical American family’s ability to buy a home, affordability was at the second-highest level in 20 years in the first quarter, a real estate trade group said Tuesday.

“Despite the recent rise in mortgage rates, affordability conditions remain at a level not seen in more than two decades,” said Robert H. Elrod, president of the National Assn. of Realtors.

The group said its housing affordability index was at 140.9 for January through March.

Although that was down from 141.9 in the final three months of 1993, it was the second-highest level of affordability since the index stood at 145.1 in the second quarter of 1973. It was 132.5 during the first quarter of 1993.

Fixed rates on 30-year mortgages averaged 7.30% during the first three months of the year, up from a 25-year low of 6.74% last October, according to the Federal Home Loan Mortgage Corp. As of last week, the average rate had risen to 8.53%, the highest since it was 8.54% on June 12, 1992.

When the housing affordability index reaches 100, a family earning the median income has exactly the amount needed to purchase a median-priced, previously owned house with conventional financing and a 20% down payment.

Since the median is the midpoint, the composite index shows that half the families in the nation had at least 140.9% of the income needed to qualify to buy a home priced at the median $107,400.

The median household income was $38,310, so the typical family could afford a home costing $151,300.

Elrod said the real estate industry expects market conditions to remain steady, “which could open the home ownership door for thousands of families this year--both first-time and repeat buyers.”

The first-time buyer index was 91.6, up from 86.7 during the first quarter of 1993 but down from 91.9 in the final three months of ’93.

When the index equals 100, the typical first-time buyer can afford the typical starter home with a 10% down payment.

Housing Affordability

The affordability index measures the ability of a typical American family to buy a home. A reading of 100 means that a family earning the median annual income of $38,310 had 100% of the income needed to purchase a median-priced, previously owned house with conventional financing and a 20% down payment. The index, quarterly: March, 1988: 111.63 June: 111.40 Sept.: 110.63 Dec.: 112.10 March, 1989: 107.60 June: 101.40 Sept.: 101.47 Dec.: 106.40 March, 1990: 106.60 June: 105.27 Sept.: 107.13 Dec.: 114.23 March, 1991: 112.27 June: 110.13 Sept.: 110.50 Dec.: 120.03 March, 1992: 120.13 June: 119.17 Sept.: 126.63 Dec.: 129.40 March, 1993: 132.20 June: 132.83 Sept.: 135.53 Dec.: 141.53 March, 1994: 140.90

Note: Figures not seasonally adjusted

Source: WEFA Group; Nat’l Assn. of Realtors