As I have been traveling around and meeting with many of our Sales Associates and team members, we have been talking a lot about the current state of our industry and in particular, the Housing Affordability Index.  I wanted to share some insight and help explain what the index is and why it is important – particularly right now.  You have no doubt seen or heard the press mention that the ‘Affordability’ index is at or near record levels.  The NAR’s Housing Affordability Index (HAI) rose to the range of 160-170 this year, setting record high levels.

The NAR Housing Affordability Index – What is It?

Essentially, the index is a measure of the financial ability of U.S. families to buy a house.  In the simplest terms, an index value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home.  An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.

The NAR Housing Affordability Index – Trending Higher

The current index at the end of 2009 stood at 171.6 and that is 56 points above where it was at the end of 2007!  What this shows is that the relationship between home prices, mortgage interest rates and family income is very favorable right now.  The NAR has said that it is the most favorable since tracking began in 1970!

The Impact of Mortgage Rates

While pricing is obviously important, mortgage rates drive a significant piece of the affordability puzzle.  It’s important to keep in mind that for every increase of 100 basis points (or 1% in rate); the monthly payment goes up about $63 per month for each $100,000 borrowed.  Over the life of a 30-year loan, that can add up quickly - to $22,680 for each $100k borrowed.

With everything we have seen in the marketplace, this may well go down as one of the best buying opportunities in decades.  It’s our job to get that message out there for potential buyers and sellers looking to move up!