Global| Jul 10 2020Housing Affordability Declines in May as Falling Income Offsets Record Low Rates
Summary
• Housing affordability decreased in May from a four-year high in April. • Falling incomes offset record low mortgage interest rates. The National Association of Realtors reported that its Fixed Rate Mortgage Housing Affordability [...]
• Housing affordability decreased in May from a four-year high in April.
• Falling incomes offset record low mortgage interest rates.
The National Association of Realtors reported that its Fixed Rate Mortgage Housing Affordability Index declined 1.3% to 169.4 in May (+12.3% year-on-year), from a four-year high in April.
Median family income, which is projected by the National Association of Realtors, dropped 2.6% in May (+ 4.1% y/y) after jumping 6.3% in April. The Bureau of Economic Analysis monthly personal income report for May showed falling government support programs offsetting rising compensation. The reverse happened in April. Meanwhile, the effective mortgage interest rate declined eight basis points to a record low 3.29% in May (data goes back to 1981). The median sales price, which was already reported last month, edged down 0.3% to $287,700. Putting this together, monthly principal and interest payments decreased to $1,007 raising the payment share of income to 14.8%.
The Housing Affordability Index equals 100 when median family income qualifies for an 80% mortgage on a median-priced existing single-family home. A rising index indicates an increasing number of buyers can qualify for a mortgage to purchase the median-priced home. Data on Home Affordability can be found in Haver's REALTOR database. Median sales prices are located in USECON. Higher frequency interest rate data can be found in SURVEYW, WEEKLY, and DAILY.
| Housing Affordability | May | Apr | Mar | Y/Y% | 2019 | 2018 | 2017 |
|---|---|---|---|---|---|---|---|
| Fixed Rate Housing Affordability Index (100+ = Affordable) | 169.4 | 171.7 | 162.1 | 12.3 | 157.6 | 147.9 | 159.1 |
| Payment as a Percent of Income | 14.8 | 14.6 | 15.4 | 16.6 | 15.9 | 16.9 | 15.7 |
| Principal and Interest Payment ($) | 1,007 | 1,020 | 1,016 | -7.4 | 1,044 | 1,079 | 967 |
| Monthly Fixed Mortgage Rate (%) | 3.29 | 3.37 | 3.51 | 4.11 | 4.04 | 4.72 | 4.20 |
| Median Family Income ($) | 81,859 | 84,065 | 79,072 | 4.1 | 78,959 | 76,401 | 73,891 |
| Median Sales Price (Existing Single Family Home, $) | 287,700 | 288,700 | 282,600 | 2.4 | 272,333 | 259,458 | 247,508 |
Gerald D. Cohen
AuthorMore in Author Profile »Gerald Cohen provides strategic vision and leadership of the translational economic research and policy initiatives at the Kenan Institute of Private Enterprise.
He has worked in both the public and private sectors focusing on the intersection between financial markets and economic fundamentals. He was a Senior Economist at Haver Analytics from January 2019 to February 2021. During the Obama Administration Gerald was Deputy Assistant Secretary for Macroeconomic Analysis at the U.S. Department of Treasury where he helped formulate and evaluate the impact of policy proposals on the U.S. economy. Prior to Treasury, he co-managed a global macro fund at Ziff Brothers Investments.
Gerald holds a bachelor’s of science from the Massachusetts Institute of Technology and a Ph.D. in Economics from Harvard University and is a contributing author to 30-Second Money as well as a co-author of Political Cycles and the Macroeconomy.
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