Tuesday, May 22, 2012

Where can you afford?

Everywhere you look, mortgage rates are down. Conforming mortgage rates, FHA mortgage rates, USDA mortgage rates and jumbo mortgage rates are each posting all-time lows.Combined with slowly rising home values and an increase in the national median income, for the first time in history, more than 77 percent of home sold were "affordable" for everyday Americans.

Low Mortgage Rates Make For Low Mortgage Payments

According to the National Association of Home Builders, 77.5% of homes sold last quarter were affordable to families earning the national median income of $65,000. "Home affordability" is defined as having housing payments that fall below 28 percent of household income assuming a 30-year fixed rate mortgage and a 10 percent downpayment.
The NAHB's definition of "affordable" is akin to what mortgage underwriters call a "front-end ratio". You can be approved for a mortgage with a front-end ratio north of 28 percent, but it may not be advisable. In defining home affordability in terms of front-end ratios, in other words, the homebuilders' association promotes a conservative approach to homeownership.
That said, home affordability moved to record levels last quarter for three main reasons :
  1. Home prices climbed in many U.S. markets, but only slowly. The list of real estate markets experiencing rapid appreciation last quarter was a short list one (e.g.; San Francisco, California)
  2. The median income level improved nationally, rising 1% from the quarter prior
  3. Most mortgage rates dropped to their lowest levels in history between January-March
Rising home prices are no match for falling mortgage rates with respect to home affordability. So long as mortgage rates stay low, home affordability should remain high.

Cincinnati, Dayton, South Carolina Remain Affordable

Keeping with the adage that all real estate is local, on a regional basis last quarter, home affordability varied.
Cumberland, Maryland topped the national rankings; 99.0% of homes in the Maryland border town were affordable to households earning the median income there. Fairbanks, Alaska followed in the number two slot with an affordability ranking of 98.9%.
Midwestern cities then stuffed the rest of the Top 10 Most Affordable Markets, a list that features Indianapolis, Indiana in the 5th slot for all housing markets, and the top slot for "big cities".
95.8% of homes in Indianapolis are affordable to households earning the median income there.
Other noteworthy cities scored as follows :
  • Dayton, Ohio : 93.7 percent
  • Lakeland / Winter Haven, Florida : 93.2 percent
  • Springfield, Illinois : 92.0 percent
  • Cincinnati, Ohio : 90.2 percent
  • Columbia, South Carolina : 89.3 percent
On the opposite end on the home affordability scale, the New York-White Plains, New York-Wayne, New Jersey region ranked last in home affordability for the 16th consecutive quarter. Just 31.5% of homes there are affordable to families earning the local median income.

Looking For Low Mortgage Rates?

The housing market has good momentum. Home sales are higher and low mortgage rates deserve at least some of the credit. So does the availability of low downpayment mortgage programs.
The FHA's 3.5% downpayment program, and the USDA and VA programs allowing for 100% financing have both helped keep home buyers in the market. See how today's low rates and low downpayment loans can help you, too.