NAR: 2012 Most Affordable Year in Housing

Americans who were able to get a mortgage and bought a home last year took advantage of the low prices and great mortgage rates in the most affordable housing year on record. Housing affordability set an annual record in 2012, the National Association of Realtors reported on Wednesday.

In 2012, the NAR’s National Housing Affordability Index hit its record high at 194, topping the previous record of 186 in 2011. The index is based on the relationship between median home price, median family income, and average mortgage interest rate.

An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent down payment and 25 percent of gross income devoted to mortgage principal and interest payments. For first-time buyers making small down payments, the affordability levels are relatively lower. The NAR began keeping track of housing affordability in 1970.

Lawrence Yun, NAR chief economist, said home buyers are able to stay well within their means. "Although 2012 was highest on record, the excessively tight underwriting precluded many would-be homebuyers from locking-in generational low interest rates," he said. "Rising home prices and a gradual uptrend in mortgage interest rates will offset improvements in family income, but 2013 likely will be the third best on record in terms of household buying power. A window of opportunity remains open for buyers who can qualify for a mortgage."

The affordability index is expected to average 160 in 2013 with buying power varying widely across the U.S. Affordability is most favorable in the Midwest and less favorable in the West, but the “typical family is well positioned in most markets,” according to the NAR.

Also this week, the National Association of Home Builders released a separate report stating that real estate markets improved in January for the fifth month in a row. Of the 361 metropolitan markets tracked by the NAHB, 242 metros showed improvement in housing permits, employment, and housing prices for the past six months. A total of 47 new metros were added to this list and six were dropped this month.

Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, said, “Potential home buyers should be encouraged by the positive momentum in home prices, permitting and employment that is increasingly evident in not just isolated housing markets, but a broadening swath of the country.”


Sources:
National Association of Realtors
National Association of Home Builders