Housing affordability remains near all-time historical high levels, according to data released today by the National Association of Realtors, and suggests that the flourishing housing recovery that started last year will continue in 2013. For the month of November, the median U.S. annual family income of $61,758 represented almost twice (198.2%) the income necessary ($31,152) to qualify for a 30-year mortgage at 3.50%, which would be used to finance the purchase of the median-priced single-family home ($180,600), assuming a 20% down payment. Therefore, the Housing Affordability Index (HAI) in November was 198.2 ($61,758 / $31,152 = 198.2%), which is close to an all-time high. The HAI was above 200 for the first three months of 2012, but fell below 200 in November (and in most other months except October) as rising home prices (up 10% since last November) have more than offset the effect of falling mortgage rates (4.37% last January). Another way to think about the historically high housing affordability is to consider that a family with the median income of about $62,000 could actually qualify for the financing necessary to purchase a $358,000 home, but could buy today’s median-priced home for about half that amount.
Bottom Line: With housing affordability close to historic high levels, we can expect ongoing increases in home sales this year, since buying a home at today’s prices, financed with today’s historically low interest rates, can be the “deal of a lifetime,” especially for first-time home buyers.