Declining Mortgage Rates Helped Housing Remain Affordable in September

At the national level, housing affordability increased in September, according to NAR's Housing Affordability Index, as mortgage rates and median home prices declined from a year earlier. Affordability rose above 100 for the second consecutive month, to 104.5.

Compared with one year ago, affordability declined in September, while the monthly mortgage payment increased by 4.1% and median family income rose by 3.8%. Mortgage payments increased in September due to higher mortgage rates and home prices. Mortgage rates were up 17 basis points from one year ago (one percentage point equals 100 basis points). Specifically, the effective 30-year fixed mortgage rate was 6.43% this September compared to 6.26% one year ago. The median existing home sales price increased 2.3% ($420,700) compared to one year ago ($411,400). 

Compared to the prior month, the monthly mortgage payment decreased by 4.0% while the median price of single-family homes fell by 1.6%. The monthly mortgage payment decreased $89 from last month.

The national index is currently above 100, which means the typical family earns more than the income needed to afford a median-priced home. An index above 100 means that a family with the median income has 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 on a 30-year fixed mortgage loan with 20% down payment account for 25% of family income.

The most affordable region was the Midwest, with an index value of 131.9 (median family income of $102,919; qualifying income of $78,000). The least affordable region remained the West, where the index was 75.0 (median family income of $114,339; qualifying income of $152,496). The South was the second-most affordable region, with an index of 109.9 (median family income of $98,290; qualifying income of $89,424). The Northeast was the second-most unaffordable region, with an index of 92.7 (median family income of $115,119; qualifying income of $124,176). 

A mortgage is affordable if the mortgage payment (principal and interest) amounts to 25% or less of the family's income.

Housing affordability inclined in two of the four regions from a year ago. The West region had the biggest gain of 1.1% followed by the South with a modest increase of 0.6%. The Northeast and the Midwest both experienced a 2.8% decline. 

Affordability increased in all four regions from last month. The Northeast had the largest increase of 9.4%, followed by the Midwest at 5.1%. The West experienced a 2.3% gain, followed by the South with a 2.2% rise. 
Compared with one year ago, the monthly mortgage payment rose to $2,112 from $2,029, an increase of 4.1%. A year ago, the monthly mortgage payment increased $83. The annual mortgage payment as a percentage of income decreased to 23.9% this September from a year ago (23.8%). 

Regionally, the West has the highest mortgage payment-to-income ratio at 33.3%. The Northeast had the second-highest share at 27.0% followed by the South at 22.7%. The Midwest had the lowest mortgage payment-to-income ratio at 18.9%. Mortgage payments are not burdensome if they are no more than 25% of income.

Mortgage rates have been trending downward for three consecutive months. Median home prices have continued to cool off since the summer months. Median family incomes are currently outpacing home price growth. These key factors have helped improve affordability in September. Last week, the Mortgage Bankers Association reported that mortgage applications increased by 7.1% from the previous week. 

View the data release.