The New Monthly Housing Affordability Model Explained

This week I took a look at the new monthly housing affordability model that has just been launched by the National Association of REALTORS® and and I thought I would share my findings and thoughts on it with you.

The model is has two components:

- The Realtors® Affordability Distribution Curve provides both national and state-level information on how many houses are affordable to households ranked by income.

- The REALTORS® Affordability Distribution Score, on the other hand, measures the affordability for all different incomes in a single measure. It differs from the existing Housing Affordability Index (HAI), in that it doesn't just consider median income levels and only looks at affordability of active inventory or homes currently available for sale, as opposed to those that have already been sold. I think that will make for far more meaningful current statistics.

You can click here to go to the National Association of REALTORS® website to see the two interactive charts.

Of the two graphs, I find that the Realtors® Affordability Distribution Score provides the best at a glance information. If you click on California in the interactive map, it gives you an instant current score. There's also a slider that allows you to see affordability scores over the past year or so.

I don't think it will surprise anyone living in the state that CA has the second worst affordability score on the map at 0.60, Hawaii being the lowest at 0.52. That's a very well established and well publicized situation, of which we're all acutely aware.

Of course this is a very broad brush indicator, but it does give some sense of the direction in which things are going and you can drill down into some more detail by referring to the Realtors® Affordability Distribution Curve.

Here we can see more specific affordability levels, which enables us to apply more local relevance. The latest published information we could find suggested that the median household income in Silicon Valley was $98,535 in 2014. While this is very likely to have risen since then, it's interesting to apply this figure to the curve, which says that 68% of households can afford 43% of the existing inventory in California.

If we make the very likely assumption that median income in the area has risen above $100,000 since 2014, we then can see that, in that bracket, 77% of households can afford 55% of the existing inventory in the state.

Needless to say, as we move up through the income brackets, affordability steadily improves. In the $125,000 - $149,000 bracket, we get an 83%/65% split.

While it's a shame that so many find home ownership so challenging, the continuing great success of real estate in this area over the past few years suggests that there's plenty of buyers willing and able to take the plunge. In fact there's some irony in that it's the bottom 75% of the market where we've been seeing the most activity in recent times!

I hope you find access to this information useful, even though statistics like these can only ever hope to give a broad overview of what's actually going on. That said, they do help to give you a very general sense of where affordability is headed if you're selling and/or buying. Don't hesitate to contact us for a much more focused discussion on how make the best of the current market in your individual circumstances.

Dominic Nicoli