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NAR: Housing Affordability Index Down in Second Quarter, Still Favorable


WASHINGTON, Aug. 3 -- General housing affordability conditions remained favorable but declined in the second quarter, largely the result of higher home prices, according to the National Association of Realtors(r) (NAR).

NAR’s composite Housing Affordability Index was 120.8 during the second quarter, down 12.4 percentage points from 133.2 in the first quarter, and was 11.5 points below the second quarter of last year when it stood at 132.3. A higher median home price and an increase in the average effective mortgage interest rate negated an increase in family income.

The index shows a median-income family had 120.8 percent of the income needed to purchase a median-priced existing home, which was $208,500 in the second quarter. The typical family, earning $56,917, could afford a home costing $251,900 in the second quarter.

This index measures affordability factors for all homebuyers making a 20 percent downpayment, with an index of 100 defined as the point where a median-income family has the exact amount of income needed to purchase a median-priced existing home.

David Lereah, NAR’s chief economist, said the median home price in the second quarter was 13.6 percent higher than a year earlier. “The strong rate of home price appreciation caused some erosion in affordability conditions, yet it hasn’t dampened the market because the second quarter was a record for existing-home sales,” he said. “Since mortgage interest rates are still so low, housing affordability conditions remain historically favorable -- there’s still headroom in this market.”

NAR President Al Mansell, of Salt Lake City, said the national index masks widely varying conditions around the country. “We find excellent housing affordability conditions in most of the Midwest and South, but there are challenges in high-cost areas -- concentrated in parts of the Northeast and West,” he said. “Even so, the fact that we continue to set sales records demonstrates the strength of homeownership as a priority and as an investment.”

According to the Federal Housing Finance Board, the average effective mortgage interest rate for existing homes was 5.83 percent during the second quarter, up from 5.77 percent in the first quarter; the rate was 5.73 percent in the second quarter of 2004. This is a weighted average interest rate between fixed and adjustable loans, including the cost of points, and represents a true bottom-line mortgage cost (See Note 1 below).

Affordability for first-time homebuyers also declined in the second quarter, falling to an index 70.1 from a reading of 76.8 in the first quarter; it was 7.0 points below the second quarter 2004.

The association’s First-Time Homebuyer Affordability Index shows a typical first-time buyer household, aged 25 to 44, with an income of $32,433, had 70.1 percent of the income needed to purchase a typical starter home in the second quarter with a 10 percent downpayment. The median starter home price was $177,200, during the second quarter; the typical first-time buyer could afford a home costing $124,200.

“The index number doesn’t tell the whole story,” Mansell said. “For example, our survey data shows the median downpayment by first-time buyers is only 3 percent, and more than 4 out of 10 are purchasing with no money down. In addition, about a quarter of first-time buyers who make downpayments are receiving gifts from their parents.” When the index was created in the early 1980s, the median first-time buyer downpayment was 10 percent.

The National Association of Realtors(r), “The Voice for Real Estate,” is America’s largest trade association, representing more than 1 million members involved in all aspects of the residential and commercial real estate industries.


Note 1: The FHFB series differs from the frequently quoted Freddie Mac series, which focus on commitment rates on 30-year conventional fixed-rate loans, not including points.



Family Income; Loan Amount; Affordable Price

$20,000; $70,800; $88,500

$30,000; $106,200; $132,700

$40,000; $141,500; $176,900

$50,000; $176,900; $221,200

$60,000; $212,300; $265,400

$70,000; $247,700; $309,600

$80,000; $283,100; $353,900

NOTE: This table shows the approximate home price a family earning the specified income could afford making a 20 percent downpayment, with no more that 25 percent of gross income for principal and interest payments. Variables include the type of loan and interest rate.

For first-time buyers making very small downpayments (about three percent), the affordable price is close to the loan amount for a given income.


Information about NAR is available at This and other news releases are posted in the Web site’s “News Media” section in the NAR Media Center. Statistical data, charts and surveys also may be found in the NAR Media Center by clicking on Economic & Housing Statistics.


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