The median-income family had more than enough income to purchase a median-priced existing home in the second quarter of the year, according to an index produced by the National Association of Realtors trade group. But affordability dropped about 12 percent from the first quarter to the second quarter.

The association’s Housing Affordability Index found that the median-income family had 120.8 percent of the income needed to purchase a median-priced existing home, which was $208,500 in the second quarter. The typical family, earning $56,917, could afford a home costing $251,900 in the second quarter. That compares to an index of 133.2 in the first quarter, and an index of 132.3 in second-quarter 2004.

A higher median home price and an increase in the average effective mortgage interest rate negated an increase in family income, the association reported. The index measures affordability factors for all homebuyers 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.

David Lereah, NAR’s chief economist, said the median home price in the second quarter was 13.6 percent higher than a year earlier. “The strong rate of home-price appreciation caused some erosion in affordability conditions, yet it hasn’t dampened the market because the second quarter was a record for existing-home sales,” he said. “Since mortgage interest rates are still so low, housing affordability conditions remain historically favorable – there’s still headroom in this market.”

NAR President Al Mansell, of Salt Lake City, said the national index masks widely varying conditions around the country. “We find excellent housing affordability conditions in most of the Midwest and South, but there are challenges in high-cost areas – concentrated in parts of the Northeast and West,” he said. “Even so, the fact that we continue to set sales records demonstrates the strength of home ownership as a priority and as an investment.”

According to the Federal Housing Finance Board, the average effective mortgage interest rate for existing homes was 5.83 percent during the second quarter, up from 5.77 percent in the first quarter; the rate was 5.73 percent in the second quarter of 2004. This is a weighted average interest rate between fixed and adjustable loans, including the cost of points, and represents the bottom-line mortgage cost.

Affordability for first-time home buyers also declined in the second quarter, falling to an index 70.1 from a reading of 76.8 in the first quarter – it was 7 points below second-quarter 2004.

According to the association’s First-Time Homebuyer Affordability Index, a typical first-time buyer household, 25 to 44, with an income of $32,433, had 70.1 percent of the income needed to purchase a typical starter home in the second quarter with a 10 percent down payment. The median starter home price was $177,200 during the second quarter, and the typical first-time buyer could afford a home that cost $124,200.

Mansell said this index “doesn’t tell the whole story. For example, our survey data shows the median down payment by first-time buyers is only 3 percent, and more than four out of 10 are purchasing with no money down. In addition, about a quarter of first-time buyers who make down payments are receiving gifts from their parents.” When the index was created in the early 1980s, the median first-time-buyer down payment was 10 percent.


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