The April Existing Home Sales release published in late May showed a strong rise in home prices from a year ago. What does this mean for affordability? The answer may surprise you.
In a recent report, “The 8th Annual Demographia International Housing Affordability Survey,” which referenced NAR’s housing data, the authors look at housing affordability in 325 metropolitan markets in Australia, Canada, Hong Kong, Ireland, New Zealand, the United Kingdom and the United States.
The survey showed that housing affordability is highest among U.S. markets. Following the U.S. are markets in Canada and Ireland. The United Kingdom, Australia and New Zealand rank as the least relatively affordable markets.
How affordable is housing for potential buyers? Today’s Housing Affordability Index produced by the National Association of Realtors® yields some insight—the best in decades.
- The headlines have recently screamed about record low mortgage rates and still soft house prices. How does this translate into affordability for potential buyers? NAR combines this information along with data on median family income into a Housing Affordability Index—an index designed to track how affordable a median priced home is to a median income family. The data show that the median priced home is more affordable to the median income family than is has been in decades.
- In short, the higher the index the more affordable the median priced home is for the median income family. (A more detailed explanation is available at this footnote[1].) November’s index is the second highest on record. The highest index on record was the previous month, October 2011. For a full look at the data, click here.
- Of course, affordability is only one aspect potential home buyers are likely to consider when deciding whether now is the right time to purchase. Family situation, work situation, and the desire to own a home are all important considerations motivating buyers according to the Profile of Home Buyers and Sellers. Additionally, potential buyers will weigh the affordability of buying against the alternative of renting. NAR has several resources that equip you to help your clients with this decision including a field guide, rent vs. buy brochure, and regular short articles on our blog.
[1] An index of 100 means that the family with median income earns exactly the income needed to qualify to purchase the median priced home. Anything greater than 100 signals that the median income family has more income than is necessary to qualify to purchase the median priced home, and the greater the index, the greater the median income is relative to the qualifying income. Conversely, an index value less than 100 indicates that the median income family does not have enough income to qualify to purchase the median priced home.
Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights new employment figures.
- Today’s data on jobs was unambiguously good. Payroll jobs rose by 200,000—more than expected. At the same time, the unemployment rate continued to fall and is now at 8.5 percent—when many had expected an uptick after last month’s decline.
- Trends we’ve observed for the past several months are seen in today’s data. The government continues to shed jobs, but at a slower rate of 12,000 jobs compared to a recent average of nearly twice that. The private sector is the driver of job growth. Additionally, the labor force shrank somewhat in December (by 50,000 workers), but the number of employed persons increased by 3.5 times that. Further, in the last 6 months of 2011, nearly half a million workers joined the labor force. The participation rate—those of the population in the labor force—is at a low last seen in the early 1980s, but the decline seems to have stemmed.
- While the market still has not returned to normal—since early 2010 we’ve recovered about a third of all jobs that were lost in the recession and slightly more than a third of the private jobs that were lost since 2007—the positive trajectory is unmistakable, and a solid labor market is a good sign for the economy and for potential home buyers.
Home Price Update
Home prices keep going up, according to the latest data from the Federal Housing Finance Agency. Prices are up 3.7 percent from one year ago to May. The Mountain states covering Arizona, Nevada, Idaho, Montana, Utah, Colorado, and New Mexico showed the strongest gains with a 6.3 percent annual gain. Read the FHFA press release here >
The following table shows home price trends according to various separate measurements using different methodologies. Though the magnitudes differ, one consistent theme is that home prices have been rising in recent months. No doubt there are markets with continued falling prices, but now there are more markets with rising prices, which thereby raises the national price index. Another point to note is that all price measurements are lagging indicators. What is happening now in late July is likely to even further strengthen home values because of tightening inventory conditions. Qualitative information, such as foot traffic at open houses, the number of phone inquiries, and the degree of seriousness of buyers are all rising according to REALTOR® member survey of market conditions. Though some homebuyers are now entering the market a step late they are still nonetheless essentially buying at record high affordability conditions.
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