Kamis, 18 Juli 2013

Setting the Baseline for a Better Housing Affordability Index

For a given amount of income, how much should owning a house cost?

That's really the issue that a housing affordability index needs to address. And as Barry Ritholtz recently noted, it's an issue that the National Association of Realtors®' Housing Affordability Index completely fails to achieve (typos repaired):

In the past, we have discussed how worthless the NAR's Housing Affordability Index is. This weekend saw an odd column in Barron's that was suckered in by the silliness of that index.

This suggests to me it is time to take another pass showing exactly why this index has so little value to anyone tracking housing values and affordability. Let’s begin by going back to our 2008 analysis:

"The index as presently constructed is utterly worthless. It provides little or no insight into how affordable US Housing actually is. Further, what is omitted from the index is especially relevant to the problems occurring in the housing market today. The Index fails to account for — or even recognize — any of the out of the ordinary circumstances that are currently bedeviling the Housing market."

That's not the worst of it — during the huge run up from 2001-2007, there was but one month — ONLY ONE MONTH! — where the NAR said homes were not affordable!

Barry then proceeds to take apart some of the sillier aspects of a recent analysis that said that despite recent interest rate hikes, "single-family houses are still quite attainable", before getting to the real question that matters: "Can American families afford homes?"

Now, we're regularly addressing that question as it applies to the median sale prices of new homes with respect to the median American household income, but what about other U.S. households? What's the baseline reference for them?

As it happens, we just slogged through all the Consumer Expenditure Reports' data since 1984 on how much of a household's income goes to paying the principal, interest, taxes, insurance, maintenance, repairs, and other expenses directly related to owning a home. And from that data, we can work out how much the average American household with a given amount of household income pays out each year to own their home.

Annual Expenditure for Owned Dwellings vs Annual Income Before Taxes for Various Income Ranges Reported in the Consumer Expenditure Survey, 1984-2011 [Current Year U.S. Dollars]

Our tool below then captures the average total amount that an American household with the income you enter would pay to own their own home over the course of a year. What's more, we'll tell you how what what you might pay in a year to own your own home compares with that average:

(If you're reading this article on a site that republishes our RSS news feed, click here to access a working version of this tool!)





Annual Household Income Data
Input Data Values
What's your annual household income before taxes?
How much do you pay to own your home in a year?






Housing Affordability
Calculated Results Values
Average Annual Amount that Americans with Your Income Pay to Own Their Homes
Ratio of Your Annual Cost with the Average for Your Income
Average Monthly Amount that Americans with Your Income Pay to Own Their Home

In the tool above, a housing affordability index value greater than 100% tells you that you what you are paying to live where you do is greater than the average amount paid by Americans with the same household income before taxes. Meanwhile, a housing affordability index value below 100% tells you that what you pay is less than what the average American household with your income pays for its dwelling.

We've also calculated the monthly amount that an American household with your income would pays on average, so you can compare it with your current or prospective mortgage payment. The thing to remember here is that to stay affordable, the payment on the home you might be considering buying needs fall below the average, because things like maintenance, repairs and anything else that isn't covered by your mortgage payment can easily push your housing expenditures above the average affordability line.

Finally, if you have an adjustable rate mortgage, you *really* want to have your monthly payment fall far below the average amount listed above, because your future mortgage payments after your rates are adjusted will likely be quite a bit higher as compared to today's just off-the-bottom, all-time-record lows.

Tidak ada komentar:

Posting Komentar