December 2015 Housing Affordability Index

At the national level, housing affordability is down from a year ago as higher home prices and only slightly lower mortgage rates mean that monthly payments are rising faster than incomes.

Housing affordability declined from a year ago in December pushing the index from 171.0 to 161.7. The median sales price for a single family home sold in December in the US was $226,000, up 8 percent from a year ago. For year as a whole, the median price for a home in the US 2015 was 223,900, 7.2 percent higher than 2014 price which was 208,900.

• Growing incomes and easing mortgage rates from a year ago helped to nearly offset the increase in home prices. Nationally, mortgage rates were down 2 basis points from one year ago (one percentage point equals 100 basis points) while incomes rose approximately 2 percent. The reduction in mortgage rates from one year ago saves the median home buyer $2 per month on principal and interest payments at the current home price while income growth means the median family earns $106 more per month than December 2014.
• Regionally, all four regions saw declines in affordability from a year ago. The Midwest had the biggest decline in the affordability index of 6.5 percent followed by the West, South, and Northeast with the smallest at 2.7 percent.
• The West had the biggest increase in price at 8.6 percent while the Northeast experienced the slowest price growth at 6.1 percent. The Midwest and the South fell in between with 7.8 percent and 7.0 percent, increase in single family home prices, respectively.
• By region, affordability is down in all regions from last month. The South (5.0 percent) and West (3.0 percent) had the biggest dip while the affordability decreased the least the Midwest (2.1 percent) and Northeast (0.9 percent).
• Despite month to month changes, the most affordable region is the Midwest where the index is 209.5. This means that in the Midwest in December 2015, the median income family earned roughly 2 times the income that would be needed to qualify to purchase the median-priced home that sold in the same month. For comparison, the index is 167.3 in the South, 165.1 in the Northeast, and 118.5 in the West.
• Price growth for potential home owners remains unhealthy especially in certain metro markets where inventory is an issue. Mortgage rates are currently stable and have exhibited a tendency to move lower as a result of financial market turmoil in spite of the Fed’s move to raise short-term rates. Homebuyers looking to get into the market can still lock in a low rate which helps make homes more affordable and enables new owners to participate in the equity build up that results when home prices rise.
• What does housing affordability look like in your market? View the full data release here.
• The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principle and interest payment to income). See further details on the methodology and assumptions behind the calculation here.