Breaking down the drivers of home affordability

The cost of living is going up. The Bureau of Labor Statistics’ (BLS) April Consumer Price Index (CPI) rose 8.3% over the past year, higher than consensus estimates. From food, to energy, cars and shelter, no sector is safe from inflation.

Higher prices doesn’t always mean less affordable, relatively speaking. The Housing Affordability Index (HAI) measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data.

It’s significant in projecting demand, particularly in real estate. When homes are affordable, more people will be more likely to buy them. Unfortunately for buyers, homes are becoming less and less affordable. According to the National Association of Realtors, the National Home Affordability Index has fallen to 124.0, down from 175.2 as of March 2021. As of March 31, 2021, the typical family could qualify for a mortgage on a home worth 175.2% higher than the typical house costs. As of March 31, 2022, that number dropped to 124.0%.

For some context, in 2005, near the peak of the last major housing boom, the HAI was 113.2 according to the NAR.

 

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