Home Affordability Study : It Really *Is* A Great Time To Buy A Home
Are you hearing that it's "a great time to buy a home" from your REALTOR®? Based on the evidence, the old maxim may be right..
Lifetime-low mortgage rates and still-cheap home prices have rendered U.S. homes more affordable than at any time in recent recorded history. Home affordability is high nationwide.
If you plan to buy a home in 2013, the best time to buy a home may be today.
Low Rates Put Homeownership Within Reach
Each quarter, the National Association of Homebuilders (NAHB) measures the median household income of 225 metropolitan areas nationwide, and maps those findings against each respective areas' median housing costs.
The result is what's called the Home Opportunity Index (HOI), a quarterly report of home affordability nationwide.
The Home Opportunity Index makes a few assumptions. First, it assumes a 10% downpayment by the buyer. Second, it assumes that mortgage rates are equal to a weighted average of the quarterly fixed- and adjustable-rate mortgages. And, lastly, it assumes that a home buyer's monthly housing payment won't exceed twenty-eight percent of the area monthly median income.
Using these values, the NAHB Home Opportunity Index found that nearly 3 in 4 U.S. residents could "afford" to buy a home.
The Q1 2013 reading of 73.7 marks the 17th straight quarter during which home affordability topped 70%, dating to early-2009. Prior to the current, 4-year winning streak, home affordability had rarely even crossed sixty percent.
Affordability has been boosted by low mortgage rates and low home prices, as well as an increase in the jumbo loan limits for FHA, VA and conventional mortgages.
Prior to 2009, conventional mortgages were capped at $417,000, for example. They are currently as high as $625,500 in designated "high-cost areas" which includes Los Angeles County, California; Alexandria, Virginia; and, New York City, New York.
FHA loan limits are even higher, ranging up to $729,750 for a 1-unit property.
Where Home Affordability Is Highest
When you're in search of affordable homes, differentiation can be made for "big markets" and "small markets".
In the Small Market category, Mansfield, Ohio claimed the title of the nation's Most Affordable Housing Market. An astounding 97.5 percent of homes in the northern Ohio city are affordable to families earning the area's median income of $54,600.
The Cumberland, Maryland area -- which also includes parts of West Virginia -- ranked second at 96.6%.
In the Big Market category, Indianapolis, Indiana took top honors with 92.7 percent of all homes affordable to families earning the area's median income of $65,100. Other ranking big cities included Dayton, Ohio; Ogden, Utah; and Lakeland-Winter Haven, Florida.
Midwest cities tended to rank highly for home affordability, overall :
- Springfield, Ohio : 96.3 percent affordability
- Rockford, Illinois : 93.8 percent affordability
- Saginaw, Michigan : 92.8 percent affordability
- Cincinnati, Ohio : 90.4 percent affordability
- Duluth, Minnesota : 89.1 percent affordability
On the opposite end of the affordability scale sits the New York City region, and San Francisco.
The New York metro region ranked last in home affordability for 18 straight quarters until late-2012 quarter, losing its title of Least Affordable Market to San Francisco - San Mateo - Redwood City, California, which has now repeated as the Least Affordable City in America.
In San Francisco, where the median home sale price is $700,000 and the median household income tops $102,000, just 28.9 percent of homes were "affordable" to local home buyers.
By comparison, in the New York metro area -- a region which also includes White Plains, New York and Wayne, New Jersey -- homes were affordable for 29.7 percent of buyers.
A Home Buyer's Last Chance For Cheap Housing?
In 2007, the economy took a beat-down. Home prices sunk and mortgage rates lowered from 7.00 percent and into the 3s.
Today, though, the economy mends. More than 5.3 million jobs have been added back; home prices are rising in many U.S. markets; and consumer spending is on the rise. Home affordability is among the lingering effects of last decade's recession. Soon, however, homes won't be so affordable.
If you plan to buy a home in 2013 or 2014, consider moving up your timeframe. Beyond the cliché, it really is a good time to buy. Get started by seeing how much home you can afford. Get a rate quote online and start to build your budget.