What the Affordability Index Tells Us
Today I wanted to talk about the affordability index here and across the nation, and whether or not we're hitting a bubble.
Since 2009, we've seen home prices increase, and as they've increased, we've seen the affordability index drop down. There are a lot of pundits across the country striking fear into people, saying that we're going down and down and down.
The affordability index, by definition, "measures whether or not a typical family could qualify for a mortgage loan on a typical home. A typical home is defined as the national median-priced, existing single-family home as calculated by the NAR."
For simplicity's sake, let's say the index is 100, so a family that has the median income could qualify for the median home selling price. Right now, we're way above 100, so our affordability index is pretty good.
In the video above, you can see a graph that shows the index dating back to 2009 and why there is some concern. When the market shifted, we had an overabundance of supply and many distressed properties, bank-owned foreclosures, and short sales. One out of every three homes was a distressed sale and it made everything fall.
On top of that, mortgage interest rates fell drastically. The combination of the two made the affordability index go way up, and people were getting great deals. You had homeowners and investors snatching homes up.
If we go back to 1990, though, and compare it to every year up to 2016, even though the index is at its lowest since 2009, historically, it doesn't look so scary. The bottom line is that the market is strong and interest rates are low. Prices are going up and I think we're going to see interest rates go up, but currently, the affordability index is in great shape.
If you're thinking about buying a home, you really should jump on the chance. If you're thinking about selling, prices have gone up, and you're probably in a positive equity positions.
If you have any questions about the affordability index, I'd love to hear from you. Give me a call or send me an email. Let's talk soon.