February 3rd, 2008 10:34 AM by Brian Banak
After several years of seeing families priced out of the housing market by rapidly increasing prices, that trend began to reverse itself in 2007, according to the National Association of REALTORS' (NAR) monthly housing affordability index released this week.
The NAR's housing affordability index is based on the number 100, which is the point at which a median-income family has the amount of income they need to purchase a median-priced house. That number assumes they have a 20 percent downpayment and the house payment takes no more than 25 percent of their gross income for principal and interest. The higher the index, the more affordable the housing is for families with median income.
Between December 2006 and December 2007, the housing affordability index increased from 109 to 122, the highest it's been since February 2005. Every region in the country experienced a similar, double-digit increase, led by the Midwest, where the index surged from 152 to 163.8. In the Northeast, it rose from 95.4 to 109.3; Southern buyers saw the index rise from 120.9 to 132.8. Even in Western markets, where affordability was measured in the teens during the height of the real estate boom, the index increased from 71 to 83.4.
A very meaningful number in the report is the median mortgage payment as percentage of income, which shows how much of a person's income will be needed to make a house payment. Historically, the highest affordability was in 1972 when that number was at 16.2 percent of monthly income. The lowest was in 1981 when a house payment consumed 36.3 percent of monthly income due to record high interest rates. Currently, the percentage is 20.5.