According to the National Association of Realtors (NAR), the Housing Affordability Index rose to a record high 206.1 in January, marking the highest housing affordability index level since record keeping began in 1970. The Housing Affordability Index measures the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power.
“This is the first time the housing affordability index has broken the two hundred mark, meaning the typical family has roughly double the income needed to purchase a median-priced home,” says NAR President Moe Veissi, broker-owner of Veissi & Associates Inc.
What is the Housing Affordability Index?
According to the World Property Channel website:
An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent downpayment and 25 percent of gross income devoted to mortgage principal and interest payments. For first-time buyers making small downpayments, the affordability levels are relatively lower. http://www.worldpropertychannel.com/north-america-residential-news/housing-affordability-index-national-association-of-realtors-nar-mortgage-interest-rates-median-home-price-median-family-income-moe-veissi-mls-home-listings-5378.php
NAR projects the affordability index for all of 2012 will be at an annual high, with little movement in mortgage interest rates or home prices during the year.
This news seems like it should be great news, right?
“For buyers who can qualify for a mortgage, now is a very good time to become a homeowner,” says Mr. Veissi.
Ah, there’s the rub.
Housing Affordability Index | Will it matter?
As Mr. Veissi stated above, this is a great time to buy a house IF you can qualify for a mortgage. Well, housing prices have been falling for quite a while, making homes very affordable. Mortgage rates have been dropping to record low rates, making mortgage payments incredibly affordable. But the problem is this: banks aren’t lending. This is why the housing market hasn’t recovered. It doesn’t matter if the interest rates are zero, if the banks are not lending, then conventional real estate transactions just aren’t happening.
The price of the homes and the housing affordability index does not really matter, rather, it’s the ability of the home owner to procure a mortgage that will allow the real estate market to get back on it’s feet again.
Housing Affordability Index | What’s the Solution?
What is the answer to the problems poised by the banks’ lack of lending? Competition.
The solution is more competition in the form of selling a home (deed) while the seller keeps the existing mortgage in place. This assignment of mortgage note will allow a seller who has little, no, or even negative equity in a house to sell at market price to a buyer who otherwise cannot obtain a conventional mortgage.
The implications of the assignment of mortgage payments system are great for all parties. The seller, who could not otherwise afford to pay closing costs on the no equity house, can now avoid foreclosure by selling with owner finance without coming out of pocket for any closing costs.
The buyer is thrilled because they are able to purchase a house and take advantage of the record high housing affordability index that they otherwise could not get financing for.
Utilizing the assignment of mortgage payments system to take the stagnant banks out of the real estate equation will allow the buyers, sellers, and real estate professionals who embrace the assignment of mortgage payments system to take advantage of the financial benefits presenting itself by the record high housing affordability index.