Homes are more affordable to buy than ever! So where are the buyers?

By: Dennis Norman

The National Association of REALTORS(R) has been reporting tracking a “Housing Affordability Index” since January 1989.  The index looks at whether or not an average family (an income equal to the median income) can qualify for a loan to buy a median-priced home. 

The Housing Affordabiity Index for January was at the highest level since the indexes inception, meaning homes are more affordable now, and within reach of more Americans than in the past 20 years.  Major factors in this finding, in addition to falling prices, are record low interest rates since NAR uses the current interest rates to determine the income a buyer would need to qualify. 

For January, NAR‘s report showed mortgage rates at 5.21% which is the lowest mortgage rate used in the past 20 years. 

If the index had a value of 100 that would mean a family making the median income has the exact amount of income necessary to qualify for a loan to buy a median-priced home.  A value beneath 100 means the family is falling short of enough income and any over 100 means the family has more than enough income.

For January the indexfor the U.S. was 166.8.  This is up from 153.2 in December and up from 133.5 a year ago.  This means the average family in the US has 60% more income than they need to buy an “average” (median-priced) home. 

Looking at this affordability you would think people would be running out the door to buy a home.  Investors should be selling homes right and left and their agents should be working 24/7 to keep up with the demand.  After all can homes get much more affordable?  So if this is the case where are the buyers??

The National Association of REALTORS(R)  also produces a pending home sales report which accounts for properties that go under contract during the period expecting to sell in a later period.  The pending home sales report for January shows that pending home sales are down 7.7% from the month before and down 6.4% from a year before.   So, in the same month that homes reach record levels in terms of affordability, the consumer still remains stubbornly poised on the sidelines. 

 This should be concerning to the real estate investor…particularly those investors that expect to sell homes in this market.  I’m not saying give up your dreams of getting rich in real estate….I’m suggesting you really look at the facts out there such as those discussed here to understand just how un-motivated buyers are to move off the sidelines.  Keep this in mind when you are making your deals…if you are expecting to sell homes before your hopes of profits have been eaten up with carrying costs, you are going to need to do things to MOTIVATE the buyers.

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