By Dees Stribling, Contributing Editor
Washington, D.C.—The National Association of Home Builders reports that its NAHB/Wells Fargo Housing Opportunity Index, which tracks residential affordability nationwide and in various metro markets, indicates that housing affordability during the third quarter of 2011 hovered near its highest level in the more than 20 years since the index was created. The index includes all types of for-sale residential properties, including multifamily condo units.
The third-quarter 2011 reading of the index was a near-record 72.9 percent, meaning that 72.9 percent of all new and existing homes sold in during the quarter were affordable to families earning the national median income of $64,200. The affordability measure rose slightly from 72.6 percent during the second quarter of this year, and has remained above the 70 percent threshold for 11 consecutive quarters—a trend that began almost concurrently with the late 2008 recession and continued during the slow-growth, post-recessionary period afterward. Before that, the index rarely rose above 60 percent.
According to the NAHB, the Housing Opportunity Index for a given area is the share of homes sold in that area affordable to a family earning the local median income, based on standard mortgage underwriting criteria. Thus there are two contributing components to the index, income and housing cost. For income, NAHB uses HUD’s annual median family income estimates. NAHB assumes that a family can afford to spend 28 percent of its gross income on housing.
On the cost side, the monthly principal and interest assumes a 30-year, fixed-rate mortgage, and an LTV of 90 percent (a 10 percent down payment, that is). The interest rate is a weighted average of fixed and adjustable rates during that quarter, as reported by the Federal Housing Finance Board. In addition to principal and interest, for the purpose of the index, the buyer’s cost also includes estimated property taxes and property insurance for that home, but not mortgage insurance.
In most markets, condos tend to be less a little less expensive than single-family housing units, and are thus a factor in housing affordability. According to a separate report by the National Association of Realtors earlier this month, the median existing condo price nationwide was $160,300 in October, down 1.5 percent from a year ago. The median existing single-family home price was $161,600 in October, which is 5.8 percent below October 2010.
The NAHB also reports considerable regional variation in housing affordability. Among smaller housing markets, the most affordable was Fairbanks, Alaska, where 97.8 percent of homes sold during the third quarter of 2011 were affordable to families earning a median income of $91,700. Also ranking near the top were Kokomo, Ind.; Cumberland, Md.-W.Va.; Davenport-Moline-Rock Island, Iowa-Ill.; and Lima, Ohio.
By contrast, New York-White Plains-Wayne, N.Y.-N.J., led the nation as the least affordable major housing market during the third quarter of 2011, the NAHB says. In New York, only 23.3 percent of all homes sold during the quarter were affordable to those earning the area’s median income of $67,400.
High prices in Manhattan tend to skew the entire metro area toward unaffordability, even though most of the borough’s for-sale housing stock is multifamily. According Miller Samuel Inc., the median sales price of a Manhattan apartment was $911,333 in the third quarter of 2011, up 7.2 percent from $850,000 in the second quarter.