Housing Affordability in the U.S. Improved in August

North America Residential News Edition | By WPJ Staff

12 oct 2021

According to NAR's latest Housing Affordability Index, housing affordability increased for the second consecutive month in August 2021 compared to the previous month. Compared to the prior month, affordability improved as the monthly mortgage payment fell by 1.1% while the median family income fell modestly by 0.7%.

Compared to one year ago, affordability declined in August as the median family income rose by 3.9% while the monthly mortgage payment increased 13.9%. The effective 30-year fixed mortgage rate was 2.89% this August compared to 3.00% one year ago, and the median existing-home sales price rose 15.6% from one year ago.

As of August 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 on a 30-year fixed mortgage loan with 20% down payment account for 25% of family income. The most affordable region was the Midwest, with an index value of 196.8 (median family income of $86,614 with the qualifying income of $44,016). The least affordable region remained the West, where the index was 114.9 (median family income of $94,372 and the qualifying income of $82,128). The South was the second most affordable region with an index of 160.6 (median family income of $80,180 and the qualifying income of $49,920) The Northeast was the second most unaffordable region with an index of 149.1 (median family income of $99,286 with a qualifying income of $66,576).

Housing affordability declined from a year ago in all the four regions. The Northeast had the biggest decline of 10.7%. The South region experienced a weakening in price growth compared to a year ago of 7.1% followed by the West with a dip of 4.9%. The Midwest had the smallest decrease of 4.8%.

Affordability is up modestly in all four regions from last month except the West where there was no change. The South had the biggest gain of 0.4% followed by the Midwest which rose 0.3%. The Northeast region had the smallest increase of 0.2%.

Nationally, mortgage rates were down 11 basis point from one year ago (one percentage point equals 100 basis points).

Compared to one year ago, the monthly mortgage payment rose to $1,210 from $1,062, an increase of 13.9%, The annual mortgage payment as a percentage of income increased to 16.5% this August from 15.1% from a year ago due to higher home prices and only modest gains in median family incomes. Regionally, the West has the highest mortgage payment to income share at 21.8 % of income. The Northeast had the second highest share at 16.8% followed by the South with their share at 15.6%. The Midwest had the lowest mortgage payment as a percentage of income at 12.7%. Mortgage payments are not burdensome if they are no more than 25% of income.

Mortgage rates have fallen back to back months and are historically low below 3%. Home price growth has also slowed down which is a good sign for first-time homebuyers who have been priced out of the market. As such, the income needed to afford a mortgage (qualifying incomes) has declined since June due to the seasonal decline in home prices and continued decline in mortgage rates.