Mortgage Blog

Plummeting home prices across the nation have been a major headline since 2006 when they began their decline. Through all of the doom and gloom comes a very comforting statistic—the Home affordability Index has improved by 60% according to a recent National Association of Realtors release. The average home, which cost 219,000 in 2006, now costs only 169,000. Aided by lower interest rates, and a less severe drop in Median Household incomes this index, which measures general home affordability, has increased from 107 to 172. So a median priced home purchased today would carry a monthly payment of about $739 (principal and interest only), as compared to $1,131 in 2006. Or in other words, a family that would have needed to earn $54,288 to qualify for an average priced home in 2006, now only needs to earn $35,472 to buy that same home.

With home prices showing early signs of stabilization, affordability nearing peak levels, and the $8,000 federal tax credit still available, we are seeing large numbers of first time home buyers enter the market. This combination of factors makes now an ideal time to become a first time buyer.

See Housing Affordibility Index Monthly created by NAR. A median family income with a 100% index will qualify for a conventional mortgage to purchase a median priced home. Above 100% means 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 and a 25% qualifying ratio. A composite HAI of 180% means a family earning the median family income has 180% of the income necessary to qualify for a conventional loan. This signifies when the HAI increases the family is more able to afford the median priced home.

Housing Affordablility Index for First-Time Hombuyers 2nd Quarter 2009