About REALTORS® Affordability Distribution Curve and Score
The NATIONAL ASSOCIATION OF REALTORS® and REALTOR.COM partnered to create the Realtors® Affordability Distribution Curve and Score. The Realtors® Affordability Distribution Curve and Score measures housing affordability at different income levels for all active inventory on the market. For each state and the 100 largest metropolitan areas, Realtors® Affordability Distribution Curve shows how many houses are affordable to households ranked by income while Realtors® Affordability Distribution Score is the measure which is intended to represent affordability for all different income levels in a single measure.
What's New in the REALTORS® Affordability Distribution Curve and Score
The Housing Affordability Index (HAI) already gives some information about affordability.
The REALTORS® Affordability Distribution Curve and Score is different in two major ways:
- it considers affordability for all income levels, not just the median income, and
- it looks at affordability of active inventory or homes currently available for sale instead of homes that have already sold.
Calculate share of households from lowest to highest incomes
Example: In the United States, 62% of households have income less than $75,000
Define a maximum affordable price and then calculate the percent of homes on the market with a price less than the maximum affordable price
- 30% of income for financing, property tax, homeowner's insurance cost (down payment<20%, mortgage insurance premium is added)
- 30-year fixed-rate
- variable down payment
Example: In the United States, households whose income is less than $75,000 can afford to buy a home of $294,595. Looking at active listings, 62% of homes on the market are priced less than $294,595.
Create REALTORS® affordability distribution curves
REALTORS® affordability distribution curve shows for the pth percentile of households ranked by income, what percentage (q) of total houses currently listed for sale they can afford.
Example: In the United States, 62% of households have income less than $75,000 and they can afford 60% of the existing inventory.
Calculate REALTORS® affordability distribution score
REALTORS® affordability distribution score is equal to twice the area below the Realtors® affordability distribution curve
REALTORS® affordability distribution score lies between 0 and 2.
Score = 0, no household can afford any of homes on the market.
Score = 1, homes on the market are affordable to households in proportion to their income distribution.
Score = 2, all households can afford all homes on the market.
Example: After calculating the area under the Realtors® affordability distribution curve for the United States, the Realtors® affordability distribution score is 0.92 in January 2017. This means that households in many income levels can afford a smaller share of houses on the market than their income percentile.
Interpretation of REALTORS® affordability distribution curve and score
A REALTORS® affordability distribution score of 1.23 means that households can afford a greater share of houses on the market than their income percentile (more affordable area).
A REALTORS® affordability distribution score of 0.52 means that households can afford a smaller share of houses on the market than their income percentile (less affordable area).
- Nielsen: income distribution data
- Realtor.com®: active inventory data, mortgage rates
- Optimal Blue: percentage of down payment