To gauge whether or not buyers can afford a home, real estate professionals turn to the National Association of Realtors’ (NAR) Housing Affordability Index, a metric that gauges:
“whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national level based on the most recent price and income data.”
In other words, this index factors in home prices, interest rates, and income levels to determine the affordability of housing across the country. Under this criteria, a value of 100 means a family earning the median income earns enough to qualify for a mortgage on a median-priced home, based on current home values and mortgage interest rates. Anything above 100 means the family has “more than enough” to qualify, as they put it over at Keeping Current Matters.
And, recently, some observers have been worried about the Housing Affordability Index – along with the state of the real estate market in general. Given that interest rates are set to rise and that inventory continues to sit at relative lows around the country, some experts are anticipating a slowdown in the market over the course of the rest of 2017.
On one level, the Housing Affordability Index confirms fears of a slower market. There can be no denying, for instance, that home prices have been rising; the index is lower than it has been in recent years, which indicates that some could be priced out of their ability to buy a home.
For some hard data, check out this graph from Keeping Current Matters, which tracks the Housing Affordability Index from 1990 to today:
As you can see, the index has certainly been declining. But there’s a reason that 2009 to 2015 are grayed out on that graph; the index skyrocketed during those years, but that data is a reflection not of a boom time, but of the housing crisis. A few years ago there was a massive overabundance of inventory on the market, including foreclosures and short sales; in fact, as many as one in three listings back then was a distressed sale.
Given these circumstances, of course housing became more affordable – there was more of it on the market, and it was being sold off desperately, at unbelievably deep discounts.
Since then, interest rates have dropped and the market has stabilized, causing home values to climb upward once again. This is actually the sign of a market that is, on the whole, healthier for buyers and sellers alike.
And take another look at that graph: Although the index has dropped from recent, record highs, affordability is still better right now than it was at any point before 2009. Interest rates continue to sit near record lows, and income has actually been rising, “outpacing home price growth in more than half of markets,” according to ATTOM Data Solutions.
So, with historical norms taken into account, 2017 is still a prime time for housing affordability! If you've been delaying your search for a new home, now is the time to start!
Ready to begin your search for a new home? Curious about what market conditions look like in your Chicago neighborhood? Don’t hesitate to reach out to Real Group with any questions or concerns! Our team is here and ready to help.
