With 11 months of data reported, 2012 will clearly go down as a record year for favorable housing affordability conditions, and a great year for buyers who could get a mortgage, according to the NATIONAL ASSOCIATION OF REALTORS®.

NAR’s national Housing Affordability Index stood at 198.2 in November, meaning the median-income family would have 198.2% of the income needed to purchase a median-priced existing single-family home. 

The higher the index, the greater the household purchasing power; recordkeeping began in 1970.

An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20% downpayment and 25% of gross income devoted to mortgage principal and interest payments.

For first-time buyers making small downpayments, the affordability levels are relatively lower.

Home buyers are able to stay well within their means when buying a house last year, but still faced finance challenges, said NAR Chief Economist Lawrence Yun.

“Although 2012 was highest on record, the excessively tight underwriting precluded many would-be home buyers from locking-in generational low interest rates,” he said. “Rising home prices and a gradual uptrend in mortgage interest rates will offset improvements in family income, but 2013 likely will be the third best on record in terms of household buying power. A window of opportunity remains open for buyers who can qualify for a mortgage.”

NAR projects the housing affordability index to average 160 during 2013. Conditions vary widely, with the highest buying power in the Midwest. Even in the West, where the regional index is lower, they typical family is well positioned in most markets.

NAR President Gary Thomas said the minor erosion in affordability conditions moving forward could be mitigated by bank and regulatory policies. “Clearer rules from the government regarding future lawsuits and buybacks of Fannie and Freddie loans could encourage banks to use their massive cash holdings to originate more loans,” he said.

“A more sensible lending environment that makes it easier for other financially qualified buyers to get a mortgage would allow many more households to enter the market, boosting home sales as much as 10% to 15%,” Thomas said.

Source: NAR