Home Affordability Sinks For The First Time In 12 Months

Home Affordability Index 2012 Q2Rising home prices are taking a toll on today’s home buyers. For the first time in 4 quarters — and despite falling mortgage rates — home affordability is sinking. 

Earlier this week, the National Association of Home Builders reported the Home Opportunity Index, a measure of home affordability, down to 73.8 for the second quarter of the year. This marks the metric’s first “down” quarter since the second quarter of 2011, and is its lowest reading since December 2010.

A home is considered “affordable” when its payments meet standard mortgage underwriting criteria for families earning the local median income. This definition is used for homes across all U.S. markets.

73.8% of homes sold last quarter were affordable to households earning the national median income of $65,000. This is the 13th straight quarter dating back to 2009 that the index surpassed 70. Prior to 2009, the Home Opportunity Index had not crossed 70 even one time.

Like all real estate data, home affordability varied by locale.

In the Midwest, for example, affordability was highest. 7 of the top 10 most affordable markets nationwide were spread throughout the nation’s heartland. An Alaskan city took the top spot.

The top 5 most affordable cities for home buyers in Q2 2012 were:

  1. Fairbanks, AK (98.7%)
  2. Mansfield, OH (98.1%)
  3. Springfield, OH (95.9%)
  4. Carson City, NV (95.4%)
  5. Kokomo, IN (95.4%)

At #23, Ocala, Florida (91.7%) was the top-ranked South Region city last quarter.

By contrast, the Northeast Region and Southern California remained among the least affordable housing markets nationwide. Led by the New York-White Plains, NY-Wayne, NJ area, 9 of the 10 least affordable areas were in the Mid-Atlantic and California, and for the 17th consecutive quarter the New York metro area was ranked “Least Affordable”.

Just 29.4 percent of homes were affordable to households earning the area’s median income there, down from 31.5 percent three months ago.

The rankings for all 225 metro areas are available for download on the NAHB website.

Home Purchasing Power Jumps To New Highs

Purchasing power grows in Q2 2012

With mortgage rates down to all-time lows, you can buy a lot more home for your money. Home affordability is at an all-time high.

According to last week’s Freddie Mac mortgage rate survey, the average 30-year fixed rate mortgage has dropped to 3.62% nationwide. This is down from 4.08% in March, and down from 4.60% from one year ago.

Mortgage rates are “on sale”.

Falling mortgage rates can make one of two changes to the way a home buyer looks at properties. They can either make a given home’s monthly housing payment that much more affordable to a buyer, or they can expand that buyer’s home purchasing power to a higher, maximum price point.

Since July 2011, that maximum price point increase has been significant.

Assuming a principal + interest payment of $1,000 per month and a 30-year loan term, a category that includes 30-year fixed rate mortgages and most adjustable-rate mortgages, here’s a maximum loan size comparison of the last 12 months : 

  • July 2011 : A payment of $1,000 affords a maximum loan size of $197,130
  • July 2012 : A payment of $1,000 affords a maximum loan size of $219,409

With an increase in maximum loan size of more than $22,000 in just 12 months, it’s no wonder that multiple-offer situations are becoming more common — today’s buyers know that low home prices and low mortgage rates are combining to make home buying more affordable than at any time in recent history.

However, the buyer-friendly environment can’t last forever.

First, home prices have started to rise nationwide. Demand for homes has outpaced home supply in many U.S. markets and that leads home prices higher. Second, low mortgage rates can’t last forever.

A recovering economy will lift mortgage rates back above 4 percent, a scenario that will hit home affordability hard.

Home-buying conditions are optimal this season. If you’re in the market for a new home, talk to your real estate agent and loan officer about maximizing your home purchasing power.

Mortgage Payments Fall To All-Time Lows

Mortgage payments

It’s a money-saving time to be a home buyer. Historically, mortgage rates of all types — conventional, FHA, VA and USDA — have never been lower and low mortgage rates make for low monthly payments. 

According to Freddie Mac’s weekly mortgage rate survey, the average 30-year fixed rate mortgage fell to 3.67% nationwide last week for borrowers willing to pay 0.7 discount points at closing, plus a full set of closing costs. 0.7 discount points is a one-time closing cost equal to 0.7 percent of your loan size, or $700 per $100,000 borrowed.

Today’s mortgage rates are a bargain as compared to just 1 year ago.

In early-June 2011, the average 30-year fixed rate mortgage nationwide was higher by 88 basis points, or 0.88%. If you are among the many U.S. homeowners who bought or refinanced a home around that time, refinancing to today’s mortgage rates could save you 10% or more on your payment.  

Home buyers have measurably more buying power, too.

Here is how mortgage payments on a typical 30-year fixed rate mortgage have changed in 12 months :

  • June 2011 : $509.66 principal + interest per $100,000 borrowed
  • June 2012 : $458.59 principal + interest per $100,000 borrowed

Setting the math to a real-life example, a homeowner whose $350,000, 30-year fixed rate mortgage dates to last June would recognize monthly savings of at least $179 per month just by refinancing into a new 30-year fixed rate mortgage at today’s current levels. That’s more than $2,145 in payment savings per year.

Even after accounting for the required loan discount points and closing costs, the “break-even point” on a refinance like that can come quickly.

Mortgage rates have been dropping but there’s no promise they’ll fall forever. Once rates reverse higher, they’re expected to rise sharply. Therefore, if you’re planning to buy a home or refinance one , consider locking in a mortgage rate while mortgage rates are low.

The market looks good for that today.

30-Year Fixed Rate Mortgage Rates Fall To 3.78% Nationwide

Freddie Mac mortgage rates

For the fifth consecutive week, conforming 30-year fixed rate mortgage rates have dropped to new all-time lows.

According to this week’s Primary Mortgage Market Survey from Freddie Mac, “prime” mortgage applicants willing to pay 0.8 discount points plus closing costs can secure a mortgage rate of 3.78%, on average.

This is a small improvement in rate over last week when the average 30-year fixed rate mortgage rate was 3.79% with 0.7 discount points.

1 discount point is equal to 1 percent of your loan size.

Like everything in real estate, though, mortgage rates are local. Freddie Mac reports that the mortgage rates available to consumers varied by region.

  • Northeast Region : 3.78% with 0.7 discount points 
  • West Region : 3.74% with 0.9 discount points
  • Southeast Region : 3.79% with 0.7 discount points
  • North Central Region : 3.83% with 0.6 discount points
  • Southwest Region : 3.81% with 0.7 discount points

North Central Region residents currently pay the lowest fees and get the highest rates. For residents of the West, it’s the opposite. Everywhere, however,mortgage rates are down. As compared to one year ago, today’s monthly carrying cost for a conforming, 30-year fixed rate mortgage is lower by $50 per $100,000 mortgaged, or $600 per year.

A $300,000 mortgage would save $1,800 annually.

Mortgage rates have been dropping because Wall Street remains concerned for the futures of Greece, Spain, Italy and the European Union. Several European nations are at-risk for a sovereign debt default and Greece remains a threat to leave the EU. To protect against potential loss, investors have been moving money away from risky holdings toward safer ones — a class that includes U.S. mortgage-backed bonds.

As demand for the bonds rise, prices do, too. This leads mortgage rates lower and so long as economic uncertainty remains, mortgage rates are expected to stay low.

Low mortgage rates make this a good time to buy or refinance a home. Talk to your loan officer to review your mortgage options.

Home Affordability Reaches New High In Q1 2012

Home Affordability 2005-2012Falling mortgage rates and stagnant home prices are making a positive effect on home affordability nationwide. Never before in recorded history have so many homes been affordable to households earning a moderate annual income.

Last week, the National Association of Home Builders reported the Home Opportunity Index at 77.5 — its highest reading of all-time. The index indicates that more than 3 of every 4 homes sold last quarter were affordable to households earning the national median income of $65,000.

Last quarter marks the 12th straight quarter — dating back to 2009 — in which the index surpassed 70. Prior to this run, the index had never crossed 70 even once.

That said, like most real estate statistics, the Home Affordability Index has a national purview. National data is of little value to homeowners in specific cities , or in specific neighborhoods.

Last quarter, home affordability varied by region.

In the Midwest, for example, affordability was highest. 7 of the top 10 most affordable markets nationwide were spread throughout Ohio, Michigan, Illinois and Indiana. The top two spots, however, went to an East Region town (Cumberland) and a Pacific Northwest Region city (Fairbanks, Alaska), respectively.

The top 5 most affordable cities for home buyers in Q1 2012 were:

  1. Cumberland, MD (99.0%)
  2. Fairbanks, AK (98.9%)
  3. Wheeling, WV (97.0%)
  4. Kokomo, IN (95.8%)
  5. Indianapolis, IN (95.8%)

At #17, the Lakeland/Winter Haven, Florida area was the top-ranked South Region city last quarter.

By contrast, the Northeast Region and Southern California ranked among the least affordable housing markets — again. Led by the New York-White Plains, NY-Wayne, NJ area, 8 of the 10 least affordable areas were in the Mid-Atlantic and California, and for the 16th consecutive quarter the New York metro area was ranked “Least Affordable”.

Just 31.5 percent of homes were affordable to households earning the area median income there, up from 25.2 percent six months ago.

The rankings for all 225 metro areas are available for download on the NAHB website.

Make A Mortgage Rate Plan Ahead Of The Jobs Report

Non-Farm Payrolls 2000-2012

Been shopping for a mortgage rate? You may want to lock something down. Tomorrow morning, mortgage rates are expected to change. Unfortunately, we don’t know in which direction they’ll move. 

It’s a risky time for home buyers to be without a locked mortgage rate.

The action begins at 8:30 A.M. ET Friday. This is when the government’s Bureau of Labor Statistics releases its April Non-Farm Payrolls report.

The monthly Non-Farm Payrolls report is more commonly known as “the jobs report” and provides a sector-by-sector breakdown of the U.S. employment situation, including changes in the Unemployment Rate.

In March 2012, the government reported 120,000 net new jobs created — half the number created during the month prior, and the third straight month of declining job creation. The Unemployment Rate fell one-tenth of one percent to 8.2%.

For April, economists expect to see 160,000 net new jobs created, and no change in the national Unemployment Rate.

Based on the accuracy of those predictions, mortgage rates are subject to change. If the actual number of jobs created in April exceeds economist expectations, mortgage rates should rise. Conversely, if the actual number of jobs created falls short, mortgage rates should drop.

Job growth’s link to mortgage rates is straight-forward. Jobs are an economic growth engine and mortgage rates are based economic expectation. Therefore, as the number of people entering the U.S. workforce increases, so do Wall Street’s growth projections for the economy. When that happens — especially in a recovering economy such as this one – mortgage rates tend to rise.

So, for today’s rate shoppers, Friday’s job report represents a risk. The economy has created jobs for 18 straight months, a winning streak that has added 2.9 million people to the U.S. workforce. If that winning streak continues and expectations are beat, mortgage rates are likely to rise off their all-time lows, harming home affordability.

Mortgage Rates Climb Sharply After Retail Sales Report

Retail Sales 2010-2012The U.S. economy is expanding, fueled by a renewed consumer optimism and increased consumer spending.

As reported by the Census Bureau, Retail Sales in February, excluding cars and auto parts, rose 1 percent to $335 billion as 11 of 13 retail sectors showed improvement last month.

February markets the 19th time in twenty months that U.S. Retail Sales increased on a month-over-month basis.

Unfortunately, what’s good for the economy may be bad for home buyers and mortgage rate shoppers. Home affordability is expected to worsen as the U.S. economy improves.

The connection between Retail Sales and home affordability is indirect, but noteworthy — especially given today’s broader market conditions.

First, let’s talk about affordability.

Last week, the National Association of REALTORS® released its monthly Housing Affordability Index, showing that homes are more affordable to everyday home buyers than at any time in recorded history. For buyers with median earnings buying median-priced homes, monthly payments now comprise just 12.1% of the monthly household income.

The real estate trade group considers 25% to be the benchmark for home affordability. Today’s payment levels are less than half of that.

The reasons why today’s homes are so affordable are three-fold :

  1. Home prices remain relatively low as compared to peak pricing
  2. Fixed- and adjustable-rate mortgage rates remain near all-time lows
  3. Average earnings are increasing nationwide

Rising Retail Sales, however, can derail the trend. This is because Retail Sales measures consumer spending and consumer spending accounts for roughly 70 percent of the U.S. economy. As the economy expands, the forces that combined to raise home affordability so high begin to wane. 

First, in a recovering economy, mortgage rates tend to rise and, throughout 2012 and 2013, home prices are expected do the same. Second, as average earnings increase, it can spur inflation which is bad for mortgage rates, too. 

Home affordability is at all-time highs today. But, in part because of February’s Retail Sales data, we should not expect these levels to last. Mortgage rates are higher by 1/4 percent since the Retail Sales data was released — roughly $16 per $100,000 borrowed — and are expected to rise more throughout the spring home purchase season.

Retail Sales are up 6 percent from a year ago.

Home Affordability Reaches An All-Time High

Home Opportunity Index (2005-2012)Home affordability moved higher last quarter, boosted by the lowest mortgage rates in history, a rise in median income, and slow-to-recover home prices throughout the country.

According to the National Association of Home Builders, the quarterly Home Opportunity Index read 75.9 in 2011′s fourth quarter. More than 3 in 4 homes sold between October-December 2011, in other words, were affordable to households earning the national median income of $64,200.

Never in recorded history have U.S. homes been as affordable on a national level. Even on a regional and local level, affordability soared.

Affordability was highest in the Midwest; 7 of the 10 most affordable markets nationwide were in the nation’s heartland. 

The Top 5 most affordable U.S. cities in Q4 2011 were:

  1. Kokomo, IN (99.2% home affordability)
  2. Fairbanks, AK (97.5% home affordability)
  3. Cumberland, WV (96.9% home affordability)
  4. Lima, OH (96.0% home affordability)
  5. Rockford, IL (95.5% home affordability)

These are each considered “small markets”. The most affordable “major market” was the Youngstown, Ohio area, where 95.1% of homes sold were affordable to households earning the area’s local median income.

Not surprisingly, America’s “least affordable cities” were regionally-concentrated, too, with 7 of the 10 least affordable markets located in either California or Texas.

San Francisco (#3), Santa Ana (#4), and Los Angeles (#5) led for the Golden State but, for the 15th consecutive quarter, the New York metropolitan area took “Least Affordable Market” honors.

Just 29 percent of homes in and around New York City were affordable to households earning the area’s median income last quarter. It’s a large jump from the quarter prior during which 23 percent of homes were affordable.

The rankings for all 225 metro areas are available for download on the NAHB website.

With Retail Sales And Consumer Confidence Rising, Home Prices Are Expected To Follow

Consumer Confidence vs Retail Sales (2009-2012)

The U.S. economy continues to show signs of a rebound.

According to the Census Bureau, Retail Sales climbed to $329 billion last month on a seasonally-adjusted basis, excluding automobiles. January’s data marks the 18th time in 19 months that Retail Sales rose, a run that’s increased total sales receipts by 11 percent.

This is big news because Retail Sales accounts for close to 70% of the U.S. economy.

In addition, consumer confidence is rising.

In a separate, joint report from the University of Michigan and Thompson Reuters, it was shown that consumer attitudes toward the economy and the future are improving, primarily the result of recent job gains.  

The Survey of Consumers posted its highest value in 12 months.

It is not a coincidence that Retail Sales and consumer confidence both made multi-month highs — the readings are more than loosely linked. As consumers feel more confident about the economy and their personal prospects for the future, they’re more likely to spend money on goods and services, which leads to an increase in consumer spending.

For the housing market, the ramifications are two-fold.

First, from the financing side, an expanding economy is linked to rising mortgage rates. This is because Wall Street tends to chase risk in a growth economy and the bond market offers little in the way of risk. As demand for bonds drops, then, mortgage rates rise.

Second, rising consumer confidence can lead home values higher, too.

Confident consumers are more likely than fearful ones to become home buyers. They’re more likely to stop renting and start buying; more likely to list their home and “move-up” to something bigger; more likely to “take the next step”.

So, as more buyers enter the market at a time when the national home supply is shrinking, the supply-demand balance in housing is shifting toward the sellers. This creates price pressures and should lead to higher home valuations.

If you have plans to buy a home in 2012, the best time to buy may be now. Today’s mortgage rates are low and so are the home prices — a combination that’s unlikely to last.

Home Affordability Still Tops Nationwide

Home Opportunity inde 2005-2011Home affordability slipped slightly last quarter, dragged down by rising mortgage rates and recovering home prices nationwide.

The National Association of Home Builders reports a Q2 2011 Home Opportunity Index reading of 72.6. This means that nearly 3 of 4 homes sold last quarter were affordable to households earning the national median income of $64,200.

Q2 2011 marks the 10th straight quarter — dating back to 2009 — in which the index surpassed 70.

Prior to 2009, the index had never crossed 70 even one time.

However, we must remember that the Home Affordability Index is a national survey. From region-to-region, and town-to-town, home affordability varied.

In the Midwest, for example, affordability was highest. 14 of the 15 most affordable markets nationwide were spread throughout Ohio, Michigan, Illinois and Indiana. Only Syracuse (#9) cracked the list from other regions. 

The top 5 most affordable cities in Q2 2011 were:

  1. Kokomo, IN (95.8%)
  2. Wheeling, WV (94.7%)
  3. Lansing, MI; East Lansing, MI (94.4%)
  4. Bay City, MI (94.3%)
  5. Youngstown, OH; Warren, OH; Boardman, OH (93.7%)

By contrast, the Northeast Region and Southern California ranked as the least affordable markets. Led by the New York-White Plains, NY-Wayne, NJ area, 7 of the 10 least affordable areas were in New York, New Jersey, and California. For the 13th consecutive quarter the New York metro area was ranked “Least Affordable”.

Just 25.2 percent of homes were affordable to households earning the area median income there.

The rankings for all 225 metro areas are available for download on the NAHB website.