Here’s why the Housing Affordability Index is a great tool for buyers.
Have you thought about making a move recently because your house value has gone through the roof (pun intended)? Only to realize, you have to buy something else and that next house is more expensive too.
The only way to really know if you “timed” the market right is with hindsight. And, hindsight takes time!
What would be nice is a tool that measures more than just the median price of housing. More even than historic prices of particular houses. Enter, The Housing Affordability Index.
Every month, the National Association of Realtors puts out a report called the Housing Affordability Index (HAI). In addition to factoring in the current median price of single-family homes, it accounts for mortgage interest rates and median income, as well as qualifying income, which is basically a measure of what mortgage companies require of borrowers. Therefore, the HAI provides us with a more holistic view of what’s going on in the real estate market and helps homebuyers understand their true purchasing power.
I always keep up with this report because it offers some incredibly useful information. At 1:35 in the video above, you’ll be able to see an example of this index (for simplicity’s sake, we’ll be checking out the national numbers, as our local Jacksonville market would require a lot more digging). The higher the affordability index number, the more purchasing power consumers have in the real estate market. The lowest this index ever got was back in 2006 when it hit just above 100 nationally. That meant it was particularly difficult for people to purchase a home at a median price point based on incomes because prices were quite high and interest rates were too.
On the other hand, the highest this index ever got was in 2013, when it topped out at 210 or so—a phenomenal time to be a homebuyer. A comparison of the data from 2017 through 2020 reveals that home affordability has remained relatively stable even with rising home prices. In October 2020, the last month for which we have complete data, the index stood at 167.2, as compared to 157.9 in 2017. There is a shortage of inventory in most markets but demand remains high thanks to low interest rates; consequently, prices just keep rising, which has, in turn, kept the home affordability index from going up by a larger degree.
The market has a funny way of balancing out all of these complex, interconnected variables. While the HAI has certainly changed over the past few years, those changes have not been dramatic.
If you’re curious to see this interesting concept applied to your selling and buying plans, feel free to reach out by phone or email anytime. I’d be happy to break these numbers down further and explain what they may mean for your particular circumstances and goals. I’m here to help, and I look forward to hearing from you soon.