Housing Market Slowdown?

Some industry pundits are predicting a possible housing market slowdown.  They point to the falling numbers of the Housing Affordability Index, as reported by the National Association of Realtors (NAR).

NAR defines the index:

“The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national level based on the most recent price and income data.”

The higher the index, the easier it is to afford a home.

Why the concern?

The index has been declining over the last several years as home values have increased. Some are concerned too many buyers may be priced out of the market.

Here is a snapshot of the index since 2009:

Though the index has decreased over the last 4 years, understand at that time there was an overabundance of housing inventory.  As many as 1 out of 3 listings was a distressed property (foreclosure or short sale). Prices dropped dramatically and distressed properties sold well below market value. Then, mortgage rates dropped dramatically.

Let’s remove the crisis years and look at the current index as compared to the index from 1990 – 2008. Even though prices have increased, historically low mortgage rates have put the index in a better position than every year for the 19 years prior to the housing crash.

Real Estate Bottom Line

The Housing Affordability Index is in good shape and should not be viewed as a challenge to the real estate market’s continued recovery.