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OFFICIAL MAGAZINE OF THE NATIONAL ASSOCIATION OF REALTORS®

Daily Real Estate News  |   February 3, 2005  |   Housing Affordability Improves in 4Q Declining mortgage interest rates and rising family income improved housing affordability conditions in the fourth quarter, according to the NATIONAL ASSOCIATION OF REALTORSŪ. NAR’s composite Housing Affordability Index was 131.8 during the fourth quarter of 2004, up 2.9 percentage points from 128.9 in the third quarter, and 5.0 points below the same period a year earlier, when it stood at 136.8. The index shows the nation’s typical household had 131.8 percent of the income needed to purchase a home at the fourth quarter median existing-home price, which was $187,500. This index measures affordability factors for all homebuyers making a 20 percent downpayment, with an index of 100 defined as the point where a median-income family has the exact amount of income needed to purchase a median-priced existing home. The fourth-quarter median family income was projected to be $55,239. David Lereah, NAR’s chief economist, says the improvement in housing affordability is sustaining historically high home sales. “The median-income family is very well positioned to buy a median-priced home in most of the country,” he says. “Favorable housing affordability conditions are coinciding with a need and desire to buy into the American dream of homeownership, so it’s no surprise that we ended a record year on a high note.” For homes purchased during the fourth quarter, the median mortgage payment consumed only 19 percent of family income. The typical household could afford a home costing $247,100, well above the national median price. NAR President Al Mansell, CEO of Coldwell Banker Residential Brokerage in Salt Lake City, says the outlook is favorable. “Mortgage interest rates will be rising very slowly, so potential homebuyers will have ample opportunity to get into the market this year. Housing remains the soundest investment a family could make.” According to the Federal Housing Finance Board, the average effective mortgage interest rate for existing homes was 5.72 percent during the fourth quarter, down from 5.82 percent in the third quarter. It was 5.83 percent in the fourth quarter of 2003. This is a weighted average interest rate between fixed and adjustable loans, including the cost of points, and represents a true bottom-line mortgage cost. Affordability for first-time homebuyers also improved, rising in the fourth quarter to 76.2 from a reading of 74.8 in the third quarter. It was 3.2 points below the fourth quarter 2003 index. The association’s First-Time Homebuyer Affordability Index shows a typical first-time buyer household, aged 25 to 44, with an income of $31,349, had 76.2 percent of the income needed to purchase a typical starter home with a 10 percent downpayment. The median starter home price was $159,400, during the fourth quarter. The typical first-time buyer could afford a home costing $121,500. “In most of the country, that means buyers must consider smaller homes or lower-end condo units,” Mansell says. “However, buyers are creative, using adjustable-rate mortgages, pooling resources, or getting help with the downpayment.” A recent NAR survey shows 24 percent of first-time buyers receive a gift from a relative or friend to help with the downpayment, and another 6 percent get a loan from a relative or friend. “This downpayment assistance helps first-time buyers to overcome the biggest obstacle to homeownership,” Mansell says. —NAR Editor's Note: For more housing statistics, visit NAR’s Economic Research Division.

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