Owning a Home Is More Affordable Than Ever Before

You may think buying a home right now is not a good idea. The current economic conditions—coupled with declining or flat housing values in many areas—are leading many would-be homebuyers to shy away from buying.

However, according to the latest data, owning a home is very much within reach for many people. Record-low interest rates and low home prices have combined to make housing more affordable than it’s ever been before.

One of the best indicators of home affordability is the National Association of Realtors’ Home Affordability Index (HAI). This index measures a “typical” family’s ability to afford a mortgage on a “typical” home. A typical family is defined as one earning the national median income and a typical home is defined as the national median-priced, existing single-family home. The index also assumes a down payment of twenty percent. As for the index itself, a score of 100 means that a typical family with the median income has exactly enough income to qualify for a typical home.

In looking at the most recent data on the chart below, the index score for November 2011 was 189.9—almost twice the mean of 100. In October 2011, the HAI was even higher with an index score of 194.2. This is the highest the index has been in 30 years. The last few years—2006 through 2010—showed a steady increase in the index, going from 107.1 in 2006 to 169.0 in 2010. When the so-called housing bubble burst in 2006, the HAI dipped to 101.0 in July of that year, but the index has been climbing ever since.

Of course, the Home Affordability Index is not a perfect measurement—it doesn’t take into account the total cost of homeownership and is based on national averages—but the index is a good general indicator of current trends. ∆