Here’s how the affordability index factors into our housing market.
I’m not sure if many of you are familiar with the Housing Affordability Index. Amid all the recent news about the housing market, whether it’s positive, negative, or somewhere in between, it’s important to remember that the real estate market is highly regional. Over the weekend, I took some time to investigate this topic, and I want to share my findings with you because it’s a subject that doesn’t receive much attention in the news.
Yes, interest rates have risen, and housing prices remain high. The reality of these factors hasn’t diminished. However, when we discuss affordability, the interest rate, whether it’s 7% or 2%, is less relevant than whether you can afford a place to call home. This is where the Housing Affordability Index comes into play. It’s a metric used to evaluate housing affordability in specific regions, and we have one for our region.
It’s crucial that you understand what this index means, as it has a direct impact on people who are gainfully employed, especially with our unemployment rate steadily decreasing at 3.6%. Employment plays a significant role in one’s ability to make various financial decisions, including buying a home.
The Housing Affordability Index is not a static number; it fluctuates, much like the stock market. Let me share some statistics from our local market. Currently, our affordability index stands at 172.2%, down from 188% in August 2020, marking a 13.8% decline. To put it simply, let’s use a hypothetical scenario. Suppose our affordability index was 120. If the median-priced home in an area costs $200,000 (similar to our region), and the standard lending criteria and prevailing rates require an annual income of $50,000 to afford it, you can calculate affordability by multiplying 1.2 (representing 120%) by the required income (50,000), which equals $60,000.
If you’re interested in finding out how your income aligns with the affordability of homes, we have numerous local lenders who can assist you with this calculation, and I’m here to guide you as well. Just call or email me with any questions. I am always willing to help!