At the national level, housing affordability declined in October 2020 compared to a year ago and fell modestly compared to September, according to NAR’s Housing Affordability Index. Affordability declined in October compared to September as the median family income rose by 3.3% while the median home prices grew by 16.0%. The effective 30-year fixed mortgage rate1 fell to 2.88% this October from 2.95% in September. Mortgage rates are at all-time lows compared to a year ago at 3.74%.
As of October 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. The most affordable region was the Midwest, with an index value of 212.6 (median family income of $83,469 which is more than twice the qualifying income of $39,504). The least affordable region remained the West, where the index was 120.2 (median family income of $90,861 and the qualifying income of $75,600). The South was the second most affordable region with an index of 173.6 (median family income of $77,329 and the qualifying income of $44,544) The Northeast was the second most unaffordable region with an index of 165.4 (median family income of $95,816 with a qualifying income of $57,936).
Housing affordability3 declined from a year ago in all regions except the West, where there was a gain of 3.1%. The South had a decline of 1.0% followed by the Midwest with a dip of 1.8%. The Northeast region had the biggest decrease in affordability at 5.8%.
Affordability is down in two of the four regions from last month. The Northeast had a decline of 0.2% followed by the South with a decrease of 1.4%. The Midwest had a modest gain of 0.1% followed by the West with an incline of 5.7%.
Nationally, mortgage rates were down 86 basis points from one year ago (one percentage point equals 100 basis points).
Even with lower mortgage rates compared to one year ago, the payment as a percentage of income rose to 15% this October from 14.8% from a year ago due to rising home prices. Regionally, the West has the highest mortgage payment to income share at 20.8 % of income. The Northeast had the second highest share at 15.1% followed by the South with their share at 14.4%. The Midwest had the lowest mortgage payment as a percentage of income at 11.8%. Mortgage payments are not burdensome if they are no more than 25% of income.4
This week the Mortgage Bankers Association reported mortgage applications decreased 1.2 from one week prior. Refinance applications increased 2% from the previous week largely due to low mortgage rates. Credit availability increased in November. Mortgage rates have continued to decline and are at a historic low. Home prices are growing too fast for incomes to keep up and more inventory will contribute to releasing some of the pressure applied from rising prices.
What does housing affordability look like in your market? View the full data release.
The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent 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.
2The 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 to 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, utilities are not considered burdensome if they account for no more than 30% of income.