Economists' Outlook

Housing stats and analysis from NAR's research experts.

Housing Affordability Drops Modestly in July 2020 as Median Family Prices Reach All Time High

At the national level, housing affordability showed signs of improvement in July 2020 compared to a year ago but dipped compared to June, according to NAR’s Housing Affordability Index. Affordability degraded in July compared to June as the median family income rose by 4.1% while the median home prices rose by 8.5% which is double income levels. The effective 30-year fixed mortgage rate1 fell to 3.08% this July from 3.22% in June. Mortgage rates are at all-time lows compared to a year ago at 3.82%.

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

As of July 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 199.8 (median family income of $80,742 which is almost more than twice the qualifying income of $40,416). The least affordable region remained the West, where the index was 116.6 (median family income of $88,022 and the qualifying income of $75,504). For comparison, the index was 168.1 in the South (median family income of $75,767 and the qualifying income of $45,072) and 181.1 in the Northeast (median family income of $93,970 with a qualifying income of $51,888).

Bar chart: Median Family Income and Qualifying Income by Region

Housing affordability2 increased from a year ago in all four regions. The Northeast had the biggest gain of 10% followed by the Midwest with an incline of 5.5%. The South had an incline of 4.2% followed by the West with the smallest increase of 2.3%.

Affordability is down in three of the four regions from last month. The Northeast had the only gain of 9.4%. The Midwest fell 1.3% followed by the South with a dip of 1.9%. The West had the biggest decline of 2.5%.

Nationally, mortgage rates were down 74 basis points from one year ago (one percentage point equals 100 basis points). The median sales price for a single-family home sold in July in the US was $307,800 up 8.5% from a year ago, while median family incomes rose 4.1 % in 2020 from one year ago.

Bar chart: July Housing Affordability by Region in 2020 and 2019

With lower mortgage rates compared to one year ago, the payment as a percentage of income fell to 15.3% this July from 16.5% from a year ago. 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 14.7%. 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

Bar chart: Mortgage Payment as a Percent of Income by Region, 2020 and 2019

This week the Mortgage Bankers Association reported mortgage applications increased 2.9 from a week earlier. Freddie Mac reported, the average mortgage rates fell to an all-time low this week of 2.86. These low rates will continue to support the demand for housing. Lower levels of housing inventory are still having an impact on the rise of home price growth.

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 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.