Will Housing Affordability Be a Challenge in 2017?

This is a great post from KCM about the affordability of the market. Right now I am hearing all kinds of theories about the market- mostly fear driven. I think this is a year of re-set because the interest rates are finally going up. This was needed to keep everyone humble so to speak. Construction costs are increasing, home prices are increasing, number of buyers are increasing, but inventory is still low so things continue to plug along. I don’t think we will see any bad effects of this market but I do expect to see some re-setting of all facets of the market by 2018-19. Again no major effects but everyone will need to slow their boats a little so that we can still produce inventory. If inventory continues to stay really low then it will take buyers longer to find a home and prices will still continue to rise as the homes that sell will sell for the highest price the market will bear. Remember homes still have to appraise so even with multiple offers we can’t just name a price and make it happen- although I have experienced quite a few all cash offers which has made it tough for financed buyers to compete.
Bottom line is the market is still strong and healthy and will continue this way barring any craziness that happens with outside factors. Try to not let the election, inauguration, interest rates, etc affect you- just reach out to your favorite real estate agent ( this should be me!) to discuss!!! I look forward to hearing from you or your referrals soon!

Will Housing Affordability Be a Challenge in 2017?

Will Housing Affordability Be a Challenge in 2017? | MyKCM

Some industry experts are saying that the housing market may be heading for a slowdown in 2017 based on rising home prices and a jump in mortgage interest rates. One of the data points they use is the Housing Affordability Index, as reported by the National Association of Realtors (NAR).

Here is how NAR defines the index:

“The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national level based on the most recent price and income data.”

Basically, a value of 100 means a family earning the median income earns enough to qualify for a mortgage on a median-priced home, based on the price and mortgage interest rates at the time. Anything above 100 means the family has more than enough to qualify.

The higher the index, the easier it is to afford a home.

Why the concern?

The index has been declining over the last several years as home values increased. Some are concerned that too many buyers could be priced out of the market.

But, wait a minute…

Though the index skyrocketed from 2009 through 2013, we must realize during that time the housing crisis left the market with an overabundance of housing inventory with as many as one out of three listings being a distressed property (foreclosure or short sale). All prices dropped dramatically and distressed properties sold at major discounts. Then, mortgage rates fell like a rock.

The market is recovering, and values are coming back nicely. That has caused the index to fall.

However, let’s remove the crisis years and look at the current index as compared to the index from 1990 – 2008:

Will Housing Affordability Be a Challenge in 2017? | MyKCM

We can see that, even though prices have increased, mortgage rates are still lower than historical averages and have put the index in a better position than every year for the nineteen years before the crash.

Bottom Line

The Housing Affordability Index is in great shape and should not be seen as a challenge to the real estate market’s continued recovery.