A seasonal decline in home prices and rising family income led to improved housing affordability in the fourth quarter of 2003, according to the National Association of Realtors.

NAR’s composite housing affordability index was 139.2 during the quarter, up 2.6 percentage points from 136.6 reported in the third quarter. The index was 1.1 points below the same period a year earlier when it stood at 140.3.

The index shows the nation’s typical household had 139.2 percent of the income needed to purchase a home at the fourth-quarter median existing-home price, which was $171,600. This index measures affordability factors for all home buyers making a 20 percent down payment, with an index of 100 defined as the point where a median-income family has the exact amount of income needed to purchase a median-priced existing home. The fourth-quarter median family income was projected to be $53,996.

David Lereah, NAR’s chief economist, said the seasonal decline in the median home price results from a normal shift in the market.

“There’s usually a higher ratio of singles and childless couples purchasing in the fourth quarter, and they generally buy more moderately priced homes,” he said. “This means fourth-quarter median prices experience a seasonal dip from the third quarter. Even so, the median price is 6.6 percent higher than the fourth quarter of 2002 and the buying power is strong because the typical family could afford a home costing $238,900 – well above the median price.”

NAR President Walt McDonald, broker-owner of Walt McDonald Real Estate in Riverside, Calif., said affordability conditions are projected to remain favorable this year.

“Although mortgage interest rates are expected to rise, particularly in the second half of the year, general affordability conditions should be favorable in most of the country throughout 2004,” he said. “The rate of home-price appreciation is expected to slow to about 4.6 percent this year, while disposable income should rise about 4.6 percent and offset most of the effects of rising mortgage interest rates.”

According to the Federal Housing Finance Board, the average effective mortgage interest rate for existing homes was 5.83 percent during the fourth quarter, up from 5.66 percent in the third quarter; it was 6.11 percent in the fourth quarter of 2002. This is a weighted average interest rate between fixed and adjustable loans, including the cost of points, and represents a true bottom-line mortgage cost.

Affordability for first-time home buyers also improved, rising in the fourth quarter to 79.9 from a reading of 78.6 in the third quarter; it was 1.5 points below the fourth quarter 2002 index.

The association’s first-time home buyer affordability index shows a typical first-time buyer household, aged 25 to 44, with an income of $30,436, had 80 percent of the income needed to purchase a typical starter home with a 10 percent down payment. The median starter home price was $145,900 during the fourth quarter.

“The index shows the typical first-time buyer could afford a home costing $116,600, which is below the median price in most metropolitan areas,” McDonald said. “The interesting thing is first-time buyers account for four out of 10 transactions, so they’re finding ways to do it – either with a small starter house, a condo, or some kind of sharing arrangement.”

The National Association of Realtors is a trade association with 972,000 members.

***

Send a Letter to the Editor for publication.
Send a comment or news tip to our newsroom.
Please include the headline of the story.

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×