Economists' Outlook

Housing stats and analysis from NAR's research experts.

Housing Affordability Declines in November 2020 as Incomes Crawl and Home Prices Jump

At the national level, housing affordability declined in November 2020 compared to a year ago but rose modestly compared to October, according to NAR’s Housing Affordability Index. Affordability increased in November compared to October as the median family income rose by 1.7% and the effective 30-year fixed mortgage rate1 fell to 2.82% this November from 2.88% in October. Mortgage rates are at all time lows compared to a year ago at 3.75%.

Line graph: Housing Affordability Index, November 2019 to November 2020

As of November 2020, 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 account for 25% of family income.2 The most affordable region was the Midwest, with an index value of 216.4 (median family income of $82,783 which is more than twice the qualifying income of $38,256). The least affordable region remained the West, where the index was 119.7 (median family income of $90,115 and the qualifying income of $75,312).  The South was the second most affordable region with an index of 175.2 (median family income of $76,694 and the qualifying income of $43,776) The Northeast was the second-most unaffordable region with an index of 166.8 (median family income of $95,028 with a qualifying income of $56,976).

Bar chart: U.S. and Regional Median Family Income and Qualifying Income

Housing affordability3 declined from a year ago in all regions except the West, where there was a gain of 3.3%. The Midwest had a modest decline of 0.6% followed by the South with a dip of 0.8%. The Northeast region had the biggest decrease in affordability at 4.2%.

Affordability is up modestly in all four regions from last month. The Northeast and Midwest both shared a gain of 0.8% followed by the South and the West, both had an incline of 0.6%.

Nationally, mortgage rates were down 86 basis points from one year ago (one percentage point equals 100 basis points).

Bar chart: U.S. and Regional November Housing Affordability, 2020 and 2019

Even with lower mortgage rates compared to one year ago, the payment as a percentage of income rose to 14.9% this November from 14.8% from a year ago due to rising home prices. Regionally, the West has the highest mortgage payment to income share at 20.9 % of income. The Northeast had the second highest share at 15.0% followed by the South with their share at 14.3%. The Midwest had the lowest mortgage payment as a percentage of income at 11.6%. Mortgage payments are not burdensome if they are no more than 25% of income.4

Bar chart: U.S. and Regional Mortgage Payment as a Percent of Income, 2020 and 2019

This week the Mortgage Bankers Association reported mortgage applications decreased 4.2 from two weeks earlier. Credit availability increased in November. Double-digit home price growth will continue to make it challenging for first time home buyers. The housing market has been a stable sector of the economy and more inventory will help allow it to maintain its support.

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 percent 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 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).

4 Total housing costs that include mortgage payment, property taxes, maintenance, insurance, and utilities are not considered burdensome if they account for no more than 30% of income.


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