Mortgage Rate Drop Spurs Affordability to 2-Year High

The ability of the typical American family to buy a previously owned home was boosted by low mortgage rates during the first quarter to the highest level in two years.

The National Assn. of Realtors said Wednesday that its housing affordability index, which measures affordability for both first-time and trade-up buyers, was 131.6 during the first three months of the year.

The latest reading, up from 129 in the October-December period and from 126.9 in the first three months of 1995, was the highest since the 137.4 recorded in the first quarter of 1994.

Art Godi, president of the Realtors group, attributed the boost to low mortgage rates that opened the market to first-time buyers and triggered sales of second and third homes.

When the index measures 100, a family earning the median income has exactly the amount needed to purchase a median-priced existing home, using conventional financing and a 20% down payment.

The median is the point at which half the incomes are greater and half are lower, or half the houses cost more and half cost less.

In the first quarter, the index of 131.6 meant half the families had at least 131.6% of the income needed to qualify for the purchase of a home at the national median price of $114,700.

The Realtors said the first-time buyer index also rose in the first quarter, to 83.6 from 82 in the fourth quarter and from 80.7 a year ago.

It was the highest level since the index hit 88.5, also in the first quarter of 1994.

The first-time index measures the ability of a renter family with wage earners between ages 25 and 44 to qualify for a mortgage on a starter home.