Housing affordability remains at “abnormal” highs, according to new data from the National Association of Realtors. Learn more about real estate market trends.
Housing affordability remains at historic highs, according to data released today by the National Association of Realtors.
The association’s Housing Affordability Index remains above 200 for the third consecutive month due to a favorable relationship between homes prices, mortgage rates and income. To put things in perspective, anything above 100 is good, said Walter Molony, senior public affairs specialist for the association, said in the phone interview today.
A reading of 100 represents the point where a median-income household could afford the median-priced single family home. The index assumes the buyer will make a 20 percent down payment and allocate 25 percent of gross income to his mortgage payments.
“We never broke the 200 barrier until January of this year,” said Molony of the index, which has been tracking home affordability since 1970.
The index stood at 204.3 at the end of March, the most recent month reported, down from the 207.9 reported in February and the 205.8 for January. The numbers reflect the “highest housing affordability on the planet,” said Molony, due to an overcorrection in home prices.
In the current market, it is now cheaper to buy than rent comparable properties, said Molony, and the median home price is currently less than replacement construction costs . According to Molony, “That is abnormal.”
Continued record low interest rates are a key factor increasing housing affordability. Average fixed mortgage rates hit “new all-time record lows” for the second consecutive week, according to data released yesterday by Freddie Mac.
The 30-year fixed rate mortgage averaged 3.83 percent with an average 0.7 point for the week ending May 10, 2012, a drop from the previous week when it averaged 3.84 percent. A year ago, rates averaged 4.63 percent. According to Freddie Mac, the 30-year fixed rate mortgage has averaged below 4 percent every week but one since December 8, 2011.
The 15-year fixed-rate mortgage this week averaged 3.05 percent with an average 0.7 percent, down from 3.07 the previous week. Rates followed a decline in long-term Treasury bond yields, which fell after French and Greek election results raised renewed concerns over the stability of the euro zone, said Freddie Mac in a statement. The entity was established by Congress in 1970 to help stabilize home mortgage markets and increase housing affordability.