To interpret the indices, a 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 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. For example, a composite HAI of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the HAI, then, shows that this family is more able to afford the median priced home.
The calculation assumes a down payment of 20 percent of the home price and it assumes a qualifying ratio of 25 percent. That means the monthly P&I payment cannot exceed 25 percent of a the median family monthly income.
This is good stuff, because without the HOUSING BUBBLE, this is not happening. See the graph below. One decade long, that's10 years and you don't have to look back any farther. Mortgage rates have fallen to historical lows and the Housing Affordability Index (HAI) has risen to affordable levels.
During most of the decade they were separated by their economic forces. After the fall of Leman Brothers "Oh Brother" and the unleashing of TARP "Thank You Mr. Paulson" they now have crossed and the HAI has formed a new ceiling and Mortgage Rates have dug into a new basement. This is a screaming buy signal. More affordable.
Median Sales Price of Closed Sales $K
August year over year
By Property Type: RESIDENTIAL CONDO-TOWNHOUSE CO=OP
Queens County
2008 523,500 380,000 216,000
2009 480,000 325,000 210,000
2010 449,000 343,000 195,000
Nassau County
2008 489,000 460,000 221,000
2009 430,000 365,000 208,000
2010 460,000 562,000 * 208,500
Suffolk County
2008 380,000 260,000 149,500
2009 355,000 259,000 145,000
2010 340,000 267,500 132,500
* Good Month of August
Did you think I would leave out the Da Bronx, Brooklyn and Staten Island in this overview? Not at all, you can form the same picture with median home prices in these Boroughs. Manhattan is its own island. Median home prices are down and that is the bottom line from the housing crisis. More affordable.
Housing affordability is an important issue, especially here in the New York City/Long Island area where median housing prices are far above median housing prices nationally. Looking at the HAI from NAR is somewhat deceiving because it is a national picture, but it is a tool to track over time whether housing is becoming more or less affordable.
So where are we now and how much earnings are needed to purchase a median priced home in Queens?
HAI = ( Median Family Income / Qualifying Income ) = 100
The HAI has a value of a 100 when the median-income family has sufficient income to purchase a median-priced existing home. Unfortunately, the median-income family in Queens is not producing the qualifying income to afford a median-priced home. Then how much do we need to be buyers of that median-priced home.
With all that said, where are we today? Lets look at the month of August year over year and compare. In 2008 you would of needed to earn $127,000/YR and have a down payment of $104,600 to have a HAI = 100. Today you would only need to earn $87,400 and have a down payment of $89,800 to buy that same home in Queens County.
2008 vs 2010
MEDIAN SALE PRICE 30 YR FIXED RATE QUALIFYING INCOME
2008
$ 523,000 6.5% $127,000/YR
2010
$ 449,000 4.5% $87,400/YR
The two key factors today are low mortgage rates and reduced home prices. Home buying is more affordable than the last decade and should remain more affordable for time to come.
Only you can decide when the time is right to purchase a home.
Till next time
