Homes were generally more affordable for the typical family in the first quarter of the year than they were in the fourth quarter of 2003, according to Housing Affordability Index data released today by the National Association of Realtors. But home affordability dropped off slightly in the first quarter of the year when compared with the first quarter of 2003.
The Housing Affordability Index, designed to measure whether a typical family could qualify for a mortgage loan on a typical home, dropped 0.8 percentage point from first quarter 2003 to first quarter 2004, though was up 5.4 percent, from 138.7 points in fourth quarter 2003 to 144.1 points in first quarter 2004. This means that the nation’s typical household had 144.1 percent of the income required to buy a home at the first quarter median existing-home price of $170,800.
An index rating above 100 shows that families earning the median income can generally qualify for a loan on a median-priced home, assuming a 20 percent down-payment, while lower ratings mean that median-priced homes are less affordable for families earning a median income.
“As a broad national gauge, the housing affordability index is expected to stay above 130 for the rest of the year – meaning there’s a lot of headroom in the market,” said Walt McDonald, association president.
David Lereah, chief economist for the association, said, “Although mortgage interest rates have risen in the last month, housing affordability conditions remain favorable. There are some challenges in the more expensive markets, but on balance, most of households in the United States can readily afford a typical home.”
He added, “The typical family could afford to buy a home costing more than 4.5 times their annual income. Even so, the typical buyer paid just over 3.1 times their income for a home, so on a national basis home buyers are a far cry from overextending themselves.” In the first quarter, a family earning a median income of $54,517 could afford a home with a $246,100 price tag, according to the index.
Affordability for first-time home buyers improved, the index data also found, rising 3.8 percentage points in the first quarter to 83.4 from a reading of 79.6 in the fourth quarter; but dropping 0.5 point from the first quarter 2003 index.
The association’s First-Time Homebuyer Affordability Index found that typical first-time home buyers had an income that was 83.4 percent of that needed to purchase a typical starter home. The median starter home price was $145,200 in the first quarter 2004, compared with $136,300 in the first quarter 2004. Typical first-time buyers were between the ages of 25 to 44, with an income of $30,980, the association reported. The index shows the typical first-time buyer could afford a home costing $121,100.
McDonald said, “Although it’s usually a challenge to buy your first home, there are more state and local programs today that are targeted to help entry-level buyers.”
The Federal Housing Finance Board reported that the average effective mortgage interest rate for existing homes was 5.64 percent during the first quarter, down from 5.83 percent in the fourth quarter; it was 5.9 percent in the first quarter of 2003. 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.