The Secrets of Economic Indicators: Hidden Clues to Future Economic Trends and Investment Opportunities, Third Edition (Shawn Kahl's Library) by Bernard Baumohl

Author:Bernard Baumohl
Language: eng
Format: epub
Publisher: FT Press
Published: 2013-11-28T16:00:00+00:00

Source: National Association of Realtors, used with permission.

Just how expensive is it for Americans to buy a home? The NAR assembles a table every month that measures the affordability of purchasing a home given the existing economic climate. This series, called the Housing Affordability Index, can also be found on the NAR Web site (www.realtor.org/topics/housing-affordability-index). Though this measure has virtually no impact on the stock and bond markets, it is included here because home purchases are the single biggest investment that households make in their lifetime. A favorable combination of economic conditions, such as rising personal income and low mortgage rates, makes home buying more affordable and thus sets the stage for more real estate sales in the future.

(7) The Housing Affordability Index tells whether a typical family can qualify for a mortgage loan on a typical home. A typical home is defined here as the national median price of an existing single-family home as calculated by NAR. The outcome can be found in the columns on the right side of the page. An index value of 100 means that a median-income family has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that a family earning the median income has more than enough to qualify for a mortgage loan on a median-priced home, assuming a 20% down payment. For example, a composite index of 130 means a family earning the median family income has 130% of the income necessary to qualify for a conventional loan covering 80% of a median-priced existing single-family home.

The NAR assumes a maximum qualifying ratio of 25%, where monthly principal and interest payments cannot exceed 25% of the median family’s monthly income.

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