Smart Borrower Blog

Housing Affordability Near 30 Year Highs


Jan 21st, 2020 @ 10:16 AM by Amber Nelson


Although rising home prices have led many to believe that buying a home is more expensive today, low mortgage interest rates and rising incomes have actually made homes more affordable now than almost any time in the past three decades, according to the National Association of Realtors.

The NAR’s Housing Affordability Index rose to 163.5 in October 2019. Any score above 100 means that a family with the median income has more income than required to qualify for a mortgage on a median-priced home. Discounting the housing bust years when distressed properties flooded the market, the current index level is the highest since 1990, with the exception of 2016 when it was 167. The average reading in the 90s was only around 120.

Mortgage payments make up a lower percentage of income today as well. As of October, the average monthly mortgage payment on a median priced home was just 15.3% of the median U.S. income. That’s a huge improvement from 17% a year ago and the national historic average of 21.2%.

A lot of that gain in affordability has to do with the significant drop in mortgage interest rates over the past year. The average rate on a 30-year conventional rates fell 114 basis points to 3.74% from 4.88 in October 2018.

Of course, housing affordability still varies widely from region to region and from city to city. In October, the most affordable region for its residents remained the Midwest with an index reading of 184.9, followed by the Northeast at 154.7. Next was the South with 151.5 and a distant last was the West with 105.5. Three of the four regions experienced affordability declines compared to September but were all up on a yearly basis.

And mortgage payments as a percentage of income fall into a similar pattern. The average mortgage payment in the Midwest was just 12.0% of the median income there in October, while the Northeast’s payments were 14.7% of the local median income.  The South was at 14.8% and the West was higher than the historical norm at 21.7%.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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