By: Michael Hyman, A RESEARCH DATA SPECIALIST FOR THE NATIONAL ASSOCIATION OF REALTORS®.
At the national level, housing affordability declined in April compared to a year ago, according to NAR’s Housing Affordability Index. Affordability declined in April compared to March as the median family incomes declined by 1.0% while the monthly mortgage payment increased 16.1%. The effective 30-year fixed mortgage rate1 was 3.11% this April compared to 3.37% one year ago, but the median existing-home sales price rose 19.9% from one year ago.
As of April 2021, the national and regional indices were all above 100, meaning that a family with the median income had more than the income required to afford a median-priced home. The income required to afford a mortgage, or the qualifying income, is the income needed so that mortgage payments make up 25% of family income.2 The most affordable region was the Midwest, with an index value of 202.7 (median family income of $87,285, which is more than twice the qualifying income of $43,056). The least affordable region remained the West, where the index was 113.7 (median family income of $95,103 and qualifying income of $83,616). The South was the second most affordable region with an index of 166.2 (median family income of $80,801 and qualifying income of $48,624) The Northeast was the second most unaffordable region with an index of 157.9 (median family income of $100,055 with a qualifying income of $63,360).
Housing affordability3 declined from a year ago in all of the four regions. The Northeast had the biggest decline of 17.5%. The South region experienced the strongest decline in price growth, compared to a year ago, of 12.2%. The Midwest region fell by 10.3% and was followed by the West, which decreased 9.5%.
Affordability is down in all four regions from last month. The Midwest had the biggest decline of 12.0%, followed by the Northeast, which fell 10.7%. The South region fell 9.8%, followed by the West region, with the smallest decrease of 8.2%.
Nationally, mortgage rates were down 26 basis points from one year ago (one percentage point equals 100 basis points).
Compared to one year ago, the monthly mortgage payment rose to $1,184 from $1,020, an increase of 16.1%, The annual mortgage payment as a percentage of income inclined to 16.0% this April from 13.7% from a year ago due to higher home prices and a decline in median family incomes. Regionally, the West has the highest mortgage payment to income share at 22.0 % of income. Home prices in the West have reached an all-time high of $509,400. The Northeast had the second highest share at 15.8%, followed by the South with its share at 15.0%. The Midwest had the lowest mortgage payment as a percentage of income at 12.3%. Mortgage payments are not burdensome if they are no more than 25% of income.4
Lack of home supply is pushing home prices higher, which is having a huge impact on affordability and first-time home buyers. Incomes are coming down from recent highs, and declining incomes with higher home prices is not a good combination for a potential home buyer.
This week The Mortgage Bankers Association reported an increase in mortgage applications from a week ago. Mortgage credit availability was up 2.2% in April. New home purchase applications are down 5.9% compared to a year ago.
What does housing affordability look like in your market? View the full data release.
The Housing Affordability Index calculation assumes a 20% down payment and a 25% qualifying ratio (principal and interest payment to income). See further details on the methodology and assumptions(link is external) behind the calculation.