What home affordability numbers don’t tell you

For sale sign with sky in background

Not only are mortgages a bargain, but home prices remain well off their pre-market crash peak.

On average, homes in every U.S. region are significantly more affordable this year than they were last year, according to the most recent Housing Affordability Index released by the National Association of Realtors.

But does affordability mean it’s a good time to buy?

Home affordability as measured by the NAR tells us whether a family earning the median family income can afford the NAR’s median-priced, existing single-family home given prevailing interest rates.

The higher the index’s affordability numbers, the more affordable housing is.

The most recent monthly index shows that in October, housing affordability was at 197.8, meaning that the median family had 197.8% of the income needed to qualify to buy a median-priced home with a conventional 20% down payment on a mortgage.

Affordability might be the most important criterion for many would-be home buyers, but buyers who hope to one day sell at a profit will want to look beyond these figures to determine whether it’s a good time to buy.

Affordability doesn’t tell us about home inventory. Homes might be affordable, but if there is too much inventory, the excess supply will depress prices.

Excess inventory is a sign that you should dig deeper. Why is there excess inventory?

One reason might be that there aren’t enough jobs. Without viable employment options, people who need to work won’t want to live in that area.

Crime is another factor that could depress home prices and make them more affordable. Here we have yet another situation where affordability doesn’t equal desirability.

Without enough jobs and/or with too much crime, population might be declining. A declining population means fewer potential buyers.

Housing affordability does tell us something about the overall state of the country’s housing market, but it doesn’t tell the individual buyer much about her unique situation or whether it’s a good time to buy.

Looking at specific markets gives us some more information, but you'll still have to dig deeper into the state of the neighborhood you're looking at to decide for yourself if this is the right time to buy.

According to the most recent National Association of Home Builders/Wells Fargo Housing Opportunity Index, the most affordable major housing markets are: Lakeland-Winter Haven, Fla.; Toledo, Ohio; Youngstown-Warren-Boardman, Ohio; Indianapolis-Carmel, Ind.; and Ogden-Clearfield, Utah.

The metropolitan area that includes New York City has been the least affordable for the last 14 quarters. It’s also one of the most desirable places to live.

San Francisco, Los Angeles and Honolulu also rank among the least affordable.

Again, it’s not hard to understand why.

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