May 2015 Housing Affordability Index

At the national level, housing affordability is down from a year ago and for the month of May as fewer previously owned homes are available and prices continue to grow at an unhealthy pace relative to incomes, and lower mortgage rates did not completely offset this effect.

•Housing affordability is down from a year ago in May as the median price for a single family home in the US is up from a year ago. Regionally, the West had the biggest increase in price at 10.3% while the Northeast experienced slower price growth at 6.3%.

•The median single-family home price is $230,300 up 8.6% from May 2014. May’s mortgage rate is 3.90, down 44 basis points (one percentage point equals 100 basis points) from last year. Nationally, affordability is down from 161.2 in May 2014 to 159.7 in May 2015 because the affordability benefits of lower mortgage rates did not completely offset the challenge of rising home prices.

•Affordability is down from one month ago in all regions, and the Midwest had the largest drop of 5.8% while the West fell only 2.6%. From one year ago, affordability is down in Midwest and West while the Northeast had an increase of 1.9%. The South remained flat as lower mortgage rates offset higher home prices. The West saw the biggest decline in affordability at 1.6% and the Midwest had a decline of 1.2%.

•Higher prices are great for current home owners and a mixed sign for potential buyers. While higher prices make homes less affordable, higher prices have a tendency to push out all cash purchases and investors leaving would-be buyers with more options.

•Also, the current trend of price growth is likely encouraging more new home construction which will relieve some of the inventory pressure.  First time home buyers may want to secure a lower mortgage rate before their monthly payments rise with rate increases which are expected as the Federal Reserve begins to raise interest rates which could happen later this year. It will be interesting to see how international events play a role in rate changes going forward. Recent data suggests that demand is still strong and applications are currently on the upswing.

•What does housing affordability look like in your market?  View the full data release here.

•The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principle and interest payment to income).  See further details on the methodology and assumptions behind the calculation here.