ShareAt the national level, housing affordability declined in September 2020 compared to a year ago but rose compared to August, according to NAR’s Housing Affordability Index. Affordability increased in September compared to August as the median family income rose by 2.3% while the median home prices rose by 15.2%. The effective 30-year fixed mortgage rate1 fell to 2.95% this September from 3.00% in August. Mortgage rates are at all time lows compared to a year ago at 3.65%.
As of September 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 make up no more than 25% of family income. The most affordable region was the Midwest, with an index value of 201.9 (median family income of $79,775 which is twice the qualifying income of $39,504). The least affordable region remained the West, where the index was 112.9 (median family income of $86,968 and the qualifying income of $77,040). For comparison, the index was 170.3 in the South (median family income of $74,859 and the qualifying income of $43,968) and 159.9 in the Northeast (median family income of $92,844 with a qualifying income of $58,080).
Housing affordability2 declined from a year ago in all regions. The South had a decline of 1.0% followed by the South with a dip of 2.9%. The West had a drop of 1.0% followed by the Northeast with the biggest decrease in affordability at 6.3%.
Affordability is down in two of the four regions from last month. The South had a gain of 1.8% followed by the Midwest with an incline of 2.3%. The Northeast had a decline of 1.1% followed by the West with a dip of 2.3%.
Nationally, mortgage rates were down 70 basis points from one year ago (one percentage point equals 100 basis points). The median sales price for a single-family home sold in September in the US was $316,200 up 15.2% from a year ago, while median family incomes rose 2.3 % in 2020 from one year ago.
Even with lower mortgage rates compared to one year ago, the payment as a percentage of income rose to 15.7% this September from 15.2% from a year ago. Regionally, the West has the highest mortgage payment to income share at 22.1 % of income. The Northeast had the second highest share at 15.6% followed by the South with their share at 14.7%. The Midwest had the lowest mortgage payment as a percentage of income at 12.4%. Mortgage payments are not burdensome if they are no more than 25% of income.3
This week the Mortgage Bankers Association reported mortgage applications decreased 0.5 from one week prior. Mortgage rates have continued to decline and are at a historic low. Demand for housing is still high with a lot of sellers sifting through multiple offers on their home. Low inventory levels remain an issue for first-time buyers and potential home owners.
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 percent down payment.
2 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 percent more than the level of income needed pay the mortgage on a median-priced home, assuming a 20 percent down payment so that the monthly payment and interest will not exceed 25 percent of this level of income (qualifying income).
3 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.
