Housing Affordability Index: What This Tells You About Price Pressure

The Housing Affordability Index, measured by the National Association of Realtors, determines whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data.

An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20% down payment.

The index is not at 100.

According to September data issued by the NAR, housing affordability fell to 96.6 in September, down from 146.8 year-over-year and down from 103.8 in August.

Read also: Home Sales Unexpectedly Jump In October: Do Buyers Not Care About High Interest Rates?

Assuming the median-priced home of $391,000 in September, with the typical 6.18% mortgage rate, a family would need to earn at least $91,776 to qualify for a 30-year mortgage — the highest amount of income needed since the pre-pandemic era, with the exception of June 2022, when a family needed $92,784 annually to qualify.

The average American today pays the principal and interest on a freshly purchased median-priced home with about 35% of their monthly income. Americans used to spend more than 25% of their typical income on payments, with 30% being the comfortable level.

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“Home prices are significantly out of whack with income levels,” said Walden.

A person's salary would have to increase by 40%, mortgage rates would have to be halved, or the median price of a home would have to decrease by 30% in order to return to the 25% level, according to Walden.

In April 2021, a household needed to earn around $80,000 per year to afford payments on the median-priced home with a small down payment of 3.5%. This provides some further context regarding affordability.

When April 2022 rolled around, the necessary income was $108,000.

Read next: Mortgage Payments Have Increased A Staggering 50% From One Year Ago

According to the Joint Center for Housing Studies at Harvard University, this cost increase prevents almost 4 million renter households from purchasing the median-priced home last year.

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