Posted 05/24/2017

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Will Home Buying Get Easier The Last Half Of 2017?

NAHB Home Affordability Index 2017-Q1 Mortgage Rates Home Prices

Tim Lucas

The Mortgage Reports Contributor

Report: Mortgage Rates Rise, But Homes Are Still Affordable

Home prices fell last quarter, buffeted by rising mortgage rates and the winter season.

In the first quarter of 2017, six in 10 U.S. homes were "affordable" to households earning the national median income.

This assumes a household uses a 30-year conventional mortgage to finance the home, made a modest down payment, and carried good credit scores.

Rising affordability is not what anyone expected.

Mortgage rates experienced the fastest one-quarter jump since 2013. Barring that increase, rates rose faster than any time in the past 12 years.

Affordability should have deteriorated, but instead, it improved. That's because home prices fell from the fourth quarter of 2016. Is it a sign of falling prices in 2017?

That remains to be seen. For now, it is encouraging that more than half the homes in the country are still affordable. It's still a fantastic time to be looking for a home.

Verify your new rate (Jan 20th, 2018)

60.3% Of U.S. Homes "Affordable" For Typical Buyer

The National Association of Home Builders (NAHB) has released its Housing Opportunity Index (HOI) for this year's first quarter.

The Housing Opportunity Index is a quarterly gauge of home affordability which tracks the typical U.S. household's ability to purchase the typical U.S. home.

Data is collected across more than 225 metropolitan areas.

The index shows that, in general, homes are about as affordable today as compared to the last three quarters, despite a sharp rise in mortgage rates.

During the fourth quarter of 2016, thirty-year fixed rates averaged 3.84%. Last quarter, they jumped to 4.33% -- a nearly half-point increase in three months.

Fortunately, prices held.

The national median home price last quarter was $245,000. That's down from $250,000 during the previous quarter.

Prices now average what they did throughout 2016, but don't expect them to stay that way. Housing prices typically experience a massive jump from Q1 to Q2.

  • 2012: 14% increase from Q1 to Q2
  • 2013: 10% increase from Q1 to Q2
  • 2014: 10% increase from Q1 to Q2
  • 2015: 9% increase from Q1 to Q2
  • 2016: 8% increase from Q1 to Q2

If 2017 mirrors the year prior, home prices will jump from the current $245,000 to $265,000 in the second quarter. That will put major pressure on affordability.

Last quarter, 59.9% of homes were affordable to the typical family. This quarter, that inched up to 60.3%.

But affordability could dip into the mid-50s going forward. High prices could combine with higher rates.

The best bet for home buyers, then, is to secure today's rates and home prices.

Verify your new rate (Jan 20th, 2018)

Three Components To Affordability

Last quarter marks the 37th in a row (a span of more than 9 years) in which the index has come in above 50, the mark at which the housing market is considered affordable.

To determine whether a home is "affordable", the NAHB gathers three pieces of information.

  • Median home price nationwide
  • Average 30-year fixed mortgage rates
  • Median household monthly income

An "affordable" home is one for which the front-end debt-to-income ratio is 28% or less of the area's median household monthly income. The front-end debt-to-income ratio is calculated as (total housing payment) divided by (total monthly income).

The index also assumes conventional financing plus a ten percent down payment.

Affordability remains at a healthy level, almost exactly matching the average affordability "score" since NAHB started gathering data in 1991. What's more, homes are much more affordable than in 2007, when home prices were equally as high: the Home Opportunity Index rang in at a discouraging 43.1% that year.

If you're planning to buy a home this year or next, consider moving up your time frame. Low rates -- and increased affordability -- may not last.

Verify your new rate (Jan 20th, 2018)

Buying A Home To Become Easier In 2017?

The NAHB Housing Opportunity Index shows that home prices have risen year-over-year since 2012.

Home prices are now up 40% since hitting bottom in 2011.

That's great for homeowners. Not so great for home buyers.

Chasing ever-rising prices is hard to do on a budget. As soon as a buyer has a downpayment saved -- say 5% -- the price on which that percentage was based has risen.

(The solution, though, is to find loan programs with low-downpayment guidelines. FHA loans require just 3.5% down, while there are now a multitude of programs offering 100% financing.)

While home prices could shoot up in 2017, there's also a decent chance that they will fall.

The historic election threw markets into a state of upheaval. The stock market raced upward, and mortgage rates followed suit.

That will put pressure on affordability in the fourth quarter. Perhaps shockingly so.

But, there is an upside. Rising rates might pull the brakes on seemingly unstoppable home prices. Home values have catapulted upward by almost-free borrowing. Home buyers were getting 30-year fixed rates in the low 3s, and fifteen-year rates solidly in the 2s.

That's lower than the likely rate of inflation in coming years.

Cheap money makes monthly payments lower. Homes are affordable, even at very high prices.

In 2017, though, that trend could reverse. Rising payments could mean fewer bidding wars and over-market-price offers.

The everyday home buyer might have a better chance at securing a home at a reasonable price. Affordability may continue its winning streak, despite rising rates..

2017 should remain a stellar year to be a home shopper.

What Are Today's Mortgage Rates?

For now, mortgage rates are still low. Consider getting a pre-approval before rates rise, hurting your buying power.

Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your new rate (Jan 20th, 2018)

Tim Lucas

The Mortgage Reports Contributor

Tim Lucas has helped thousands of families buy and refinance real estate. He has been featured in Time, Realtor.com, Scotsman Guide, MyMortgageInsider.com, and more. Connect with Tim on Twitter.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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