The National Association of REALTORS is reporting that its method for measuring housing affordability will reflect another record for housing affordability when the final numbers are tabulated for 2012. Surely December figures will be added to the mix soon, but the rating--based on numbers through November--is rather impressive.
The NAR's method takes into consideration factors such as median home price, median family income, and average mortgage interest rate. The rating in November stood at 198.2. This is a very high index reading which is a good thing for home buying affordability. The Realtor Association has been keeping track of this measurement of home buying affordability since 1970. A score of 100 essentially means that based on income, median home price, and mortgage carrying costs on average, a potential home buyer would have exactly enough money to purchase a home. The measurement is based on a 20% down payment and an average scenario where the median priced home can be purchased with median income money, and that payment equals roughly 25% of the gross median income. I believe the method employed to measure housing affordability that is outlined here is a good one.
Of course, this technique of measuring housing affordability has limits to its scope. NAR uses national data, not local data. This is crucial to keep in mind any time anyone is touting information regarding "the national real estate market". There's no such thing. Real Estate is local, and given the diversity of pricing from one coast to the next and everything in between, these sorts of mechanisms that attempt to measure important home buying and home selling gauges need to be applied locally.
Consider our own Louisville housing market. Diversity in price is an understatement, and you can observe this by merely walking from one block to the next in a number of Louisville neighborhoods. The Louisville Real Estate market is not cookie-cutter, and doesn't fit cleanly into this box or that. There are many intricacies and factors.
In 2012, according to the Greater Louisville Association of Realtors Multiple Listing Service, the median sale price for a single family home in Louisville, Kentucky was $141,750. From what I can tell, the most recent figures available concerning Louisville's median household income are from 2011 when Louisville's median household income was $47,580. Based on this income and applying NAR's figure of dedicating 25% of income toward one's mortgage payment, the affordable monthly mortgage payment for someone living in Louisville, Kentucky earning the median income would be $991 per month (This payment does not include property taxes and insurance, which many Louisville Home Owners elect to escrow as part of the total mortgage carrying cost).
Interest rates have been relatively steady for awhile, and when I say steady, I mean CHEAP. I've been typically seeing interest rates on a 30 year fixed Conventional loan in the 3.5% range, but for this exercise I am using 3.6% amortized over 30 years. In this example, the median Louisville home buyer could afford to borrow approximately $218,000.
An FHA buyer in Louisville putting down the minimum down payment of 3.5%, assuming no change in interest rate, could conceivably purchase a home for a bit over $225,000.
A conventional buyer with 20% down could purchase a $272,500 home. To find out what sort of financing you might qualify for, contact your favorite loan professional, or contact me, and I will recommend a variety of quality lenders.
Based on NAR's method, Louisville is an extremely great deal when it comes to housing. If you have questions or would like additional info about selling a Louisville home or buying a Louisville Area home, please don't hesitate to contact us.