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Economy in Brief

U.S. Home Affordability Improves as Mortgage Payments Decline
by Tom Moeller  April 8, 2016

The National Association of Realtors reported that the Composite Index of Home Affordability increased 2.2% m/m to 174.9 in February following a 5.4% January gain. Nevertheless, the index remained down 3.5% versus 12-months earlier. During the last ten years, there has been a 62% correlation between the affordability index level and the y/y change in new plus existing single-family home sales.

Mortgage payments as a percent of income eased to 14.3% in February, down from a 16.2% high last July. A lower 4.04% mortgage rate accounted for much of the improvement, down from 4.54% at the beginning of 2014. A 1.2% m/m decline in home prices also fostered home affordability, though prices were up 4.3% y/y. Affordability was further enhanced by a 2.1% y/y rise in median family income. That rate of gain was down from its 3.3% peak at the end of 2014.

The Housing Affordability Index equals 100 when median family income qualifies for an 80% mortgage on a median priced existing single-family home. A rising index indicates more buyers can afford to enter the home-buying market. Data on Home Affordability can be found in Haver's REALTOR database. Interest rate data can be found in the WEEKLY and DAILY databases.

The National and Local Economic Outlook: An Update is the title of today's speech by William C. Dudley, New York Federal Reserve Bank President & CEO, and it can be found here.

Housing Affordability Feb Jan Dec Feb Y/Y 2015 2014 2013
Composite Index 174.9 171.2 162.5 -3.5% 166.1 167.8 179.7
  Median Sales Price (Existing Single Family Home) $212,300 $214,800 $224,900 4.3% $221,350 $207,125 $195,933
  Monthly Mortgage Rate   4.04% 4.12% 4.14% 3.92% 4.03% 4.30% 4.00%
  Principal and Interest Payment $815 $832 $874 5.8% $849 $820 $750
  Median Family Income $68,405 $68,379 $68,163 2.1% $67,507 $65,910 $64,030
  Payment as a Percent of Income 14.3 14.6 15.4 13.8 15.1 14.9 14.0
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