Explaining Housing Affordability
Housing Affordability Continues to Be A Challenge
These are the headlines recently…several times, as the record keeps being set. What exactly does the term “Affordability” mean?
The National Association of Home Builders (NAHB) and Wells Fargo have been calculating the Housing Opportunity Index (HOI) for more than 30 years.
The latest HOI data show in all, 65 percent of new and existing homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $65,700. This is up from the 63.3 percent of homes sold that were affordable to median-income earners in the fourth quarter.
How is the HOI calculated?
The housing cost calculation takes into consideration the price of homes and the interest rate. Today’s sub-4% rates have made a huge impact on housing affordability.
For income, NAHB uses the annual median family income estimates published by the Department of Housing and Urban Development. They use the figure of 28% of gross income as an average amount home buyers can afford to spend on housing. That 28% of average income is divided by 12 to come up with a monthly amount allowable for a mortgage.
Affordability for Frederick Md
When explaining housing affordability, it must be noted that local markets are different. While the National Affordability Index is at 65%, the local markets vary.
Frederick-Rockville-Bethesda, MD has an affordability index of 72%. The median income for this area is $109,200, the median home price is $335,000. (It’s interesting to note that five years ago the median income was $113,000, the average home price is $305,000, and the affordability rate was 75%.)
The median income for Frederick Md residents is $65,328 (down from $66,642 five years ago) according to Google, and the median home price in Frederick is $295,000. Without an exact number, I’m willing to guess that the affordability index for Frederick is higher than Rockville and Bethesda.
Incidentally, the MOST affordable area is Cumberland Maryland, where 98% of households can afford the median priced home of $145,000.
|The Highland Group
Frederick, Md 21704