At the national level, housing affordability declined in April compared to a year ago, according to NAR's Housing Affordability Index. Affordability declined in April compared to March as the median family incomes declined by 1.0% while the monthly mortgage payment increased 16.1%. The effective 30-year fixed mortgage rate1 was 3.11% this April compared to 3.37% one year ago, but the median existing-home sales price rose 19.9% from one year ago.
As of April 2021, the national and regional indices were all above 100, meaning that a family with the median income had more than the income required to afford a median-priced home. The income required to afford a mortgage, or the qualifying income, is the income needed so that mortgage payments make up 25% of family income.2 The most affordable region was the Midwest, with an index value of 202.7 (median family income of $87,285, which is more than twice the qualifying income of $43,056). The least affordable region remained the West, where the index was 113.7 (median family income of $95,103 and qualifying income of $83,616). The South was the second most affordable region with an index of 166.2 (median family income of $80,801 and qualifying income of $48,624) The Northeast was the second most unaffordable region with an index of 157.9 (median family income of $100,055 with a qualifying income of $63,360).
Housing affordability3 declined from a year ago in all of the four regions. The Northeast had the biggest decline of 17.5%. The South region experienced the strongest decline in price growth, compared to a year ago, of 12.2%. The Midwest region fell by 10.3% and was followed by the West, which decreased 9.5%.
Affordability is down in all four regions from last month. The Midwest had the biggest decline of 12.0%, followed by the Northeast, which fell 10.7%. The South region fell 9.8%, followed by the West region, with the smallest decrease of 8.2%.
Nationally, mortgage rates were down 26 basis points from one year ago (one percentage point equals 100 basis points).
Compared to one year ago, the monthly mortgage payment rose to $1,184 from $1,020, an increase of 16.1%, The annual mortgage payment as a percentage of income inclined to 16.0% this April from 13.7% from a year ago due to higher home prices and a decline in median family incomes. Regionally, the West has the highest mortgage payment to income share at 22.0 % of income. Home prices in the West have reached an all-time high of $509,400. The Northeast had the second highest share at 15.8%, followed by the South with its share at 15.0%. The Midwest had the lowest mortgage payment as a percentage of income at 12.3%. Mortgage payments are not burdensome if they are no more than 25% of income.4
Lack of home supply is pushing home prices higher, which is having a huge impact on affordability and first-time home buyers. Incomes are coming down from recent highs, and declining incomes with higher home prices is not a good combination for a potential home buyer.
This week The Mortgage Bankers Association reported an increase in mortgage applications from a week ago. Mortgage credit availability was up 2.2% in April. New home purchase applications are down 5.9% compared to a year ago.
What does housing affordability look like in your market? View the full data release.
The Housing Affordability Index calculation assumes a 20% down payment and a 25% qualifying ratio (principal and interest payment to income). See further details on the methodology and assumptions behind the calculation.
1 Starting in May 2019, FHFA discontinued the release of several mortgage rates and only published an adjustable rate mortgage called PMMS+ based on Freddie Mac Primary Mortgage Market Survey. With these changes, NAR discontinued the release of the HAI Composite Index (based on 30-year fixed-rate and ARM) and, starting in May 2019, only releases the HAI based on a 30-year mortgage. NAR calculates the 30-year effective fixed rate based on Freddie Mac's 30-year fixed mortgage contract rate, 30-year fixed mortgage points and fees, and a median loan value based on the NAR median price and a 20% down payment.
2 The 25% mortgage payment to income share takes into consideration that a homeowner has other expenses such as property insurance, taxes, utilities, and maintenance, so that total housing expenses are no more than 30% of income. Housing costs are not burdensome if they account for no more than 30% of income.
3 Total housing costs that include mortgage payment, property taxes, maintenance, insurance, utilities are not considered burdensome of they account for no more than 30% of income.
4 A Home Affordability Index (HAI) value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index of 120 signifies that a family earning the median income has 20% more than the level of income needed pay the mortgage on a median-priced home, assuming a 20% down payment so that the monthly payment and interest will not exceed 25% of this level of income (qualifying income).