So what is the National Association of Real Estate Specialists Affordability Index? This index has been calculated each year for the last 40 years and the current index that was just released is at 192 and is the highest it has been in over 40 years. What does this means to you and your clients? For example back in 1981 when interest rates were around 18% the index was at 40. That means it is over 4X more affordable to buy a home today than it was back in 1981. Just recently in 2005 when rates were higher than they are today and before prices sky rocketed the index was only at 106. The affordability index is based on interest rates, median home prices and qualifying median income.
One example for you to share with your clients: if rates go up just 1% (4.5% to 5.5%) the price of the home would have to decrease by 11% to have the same affordability. If rates go up by 2% (4.5% to 6.5%) the price of the home would have to decrease by as much as 23%. No one has a crystal ball to foresee when rate are going to go up, but as you and I know they will not stay this low forever. I hope this piece of information will help some of those buyers you might have on the fence make their decision.
Update courtesy of Nevin Bunnell of Monarch Mortgage