Home Affordability Near Highest Level in 20 Years

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It’s easy to drown in real estate statistics, but looking at “affordability” — the homes that someone on a median income could buy — is a fascinating gauge of housing markets. (Plus, it’s a statistic that can be fine-tuned to the local level). The recent release of the Housing Opportunity Index from the National Association of Home Builders/Wells Fargo shows that we’re still in a uniquely affordable phase of the market cycle. If you’re looking for good news to come from the housing slump, this is it.

One driver is prices that have fallen shockingly — in many places, by half — from 2006 highs. The national median average price has dropped less but still substantially, from $248,000 in 2006 to $176,000 in this year’s third quarter. Another factor is continued low interest rates. Rates for a 30-year conforming loan (that is, a loan with a balance of $417,500 or less) were 4.23% last week, according to data released today by the Mortgage Bankers Association.

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As a result, families earning the median income of $64,200 could afford 72.9% of the homes sold in the third quarter. (Another reason I like this statistic is that it’s calculated using actual sales prices of new and existing homes, not list prices). That 72.9% is in real contrast with the way things looked five years ago during the boom, when the number dipped to 40.4%. Housing market bulls read the current high affordability number as a sign that there is buying power to bring the real estate market out of its slump, at least at current prices.

Drilling down, the most affordable metro region in the country is Fairbanks, Alaska, where the median income is $91,700, and the average family can afford 97.8% of the homes on the market. The second most affordable city┬áis Kokomo, Ind., where the median family could buy 96.9% of the homes sold. In terms of larger metros — those with a population of half a million or more — the top prize goes to Lakeland, Fla., where the region’s median family income of $53,800 was sufficient to buy 92.5% of the homes sold in the third quarter.

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The other top affordable large metros in the U.S.? Toledo, with an affordability of 90.9%; Youngstown and its environs in Ohio and Pennsylvania, with 90%; Indianapolis-Carmel, Ind., also with 90%, and Ogden-Clearfield, Utah, with 89.8%.

The least affordable metro area is in New York/New Jersey: the New York/White Plains/Wayne metroplex, where only 23.3% of the homes sold are affordable to a buyer with the region’s median income of $67,400. New York has reigned as the most expensive metroplex for the last 14 quarters, a title held solidly through most of the 1990s by San Francisco and rotating after that through a succession of California locations, including the Los Angeles metroplex, Santa Barbara-Santa Maria, and San Luis Obispo-Paso Robles.

In fact, housing in California remains hyper-expensive, with L.A., San Francisco, and Santa Ana-Anaheim-Irvine all making the top 10 least affordable big metros list, and Santa Cruz, San Luis Obispo, and Santa Barbara making the top 10 least affordable small metros list. California dreaming is tantalizing, but it doesn’t come cheap.