zt: US home affordability

www.deptofnumbers.com/affordability/us/

US Home Affordability

The data below quantifies national home affordability by using home prices, household income and rents to calculate price-to-income, price-to-rent and rent-to-mortgage payment ratios.¹ The maximum affordable loan amount for the median household income is also calculated.

The ratios below are expressed as either dollar ratios or index ratios. The FHFA and the National Association of Realtors publish median home price values which we can use to calculate a dollar ratio (e.g. median home price to median household income). There are also home price indexes which have longer histories and are more frequently updated that we can use to create an index ratio (e.g. home price index to median household income). The latter series must be expressed as an index.

Home Price-to-Income Ratios

As measured by the latest Realtor quarterly median sales price data and median household income,the price-to-income ratio for the US was 3.53 in December 2012. The FHFA price-to-income dollar ratio is a comparable series and has history back to 2000 as shown in the first chart. The index ratios in the second chart are from monthly data and have a longer history.

Home Price-to-Income Dollar Ratio: FHFA, Realtor

Home Price-to-Income Index Ratio: FHFA, Case-Shiller

Note: Index ratios set to 100 in January of 2000

Home Price-to-Income Ratio History

Date	FHFA (Dollar Ratio)	Realtor (Dollar Ratio)	FHFA (Index Ratio)	Case-Shiller (Index Ratio)
January 2013	—	—	118.6	123.3
December 2012	—	3.53	118.0	122.1
November 2012	—	—	117.4	121.0
October 2012	—	—	116.8	120.2
September 2012	—	3.53	116.2	119.4
August 2012	—	—	116.0	118.9
July 2012	—	—	115.6	118.3
June 2012	—	3.53	115.5	118.0
May 2012	—	—	114.8	116.9
April 2012	—	—	114.0	115.8
March 2012	—	3.53	113.2	114.6
February 2012	—	—	111.7	114.2
January 2012	—	—	111.4	114.1

Home Price-to-Rent Ratios

The Realtor price-to-rent ratio for the US was 18.86 in December 2012. The FHFA price-to-rent series shows a longer history for the ratio in the first chart. These rent ratios are calculated using adjusted median contract rent data from the Census ACS.² Price-to-rent index ratios are shown in the second chart and use OER as the rent measure.

Home Price-to-Rent Dollar Ratio: FHFA, Realtor

Home Price-to-Rent Index Ratio: FHFA, Case-Shiller

Note: Index ratios set to 100 in January of 2000

Home Price-to-Rent Ratio History

Date	FHFA (Dollar Ratio)	Realtor (Dollar Ratio)	FHFA (Index Ratio)	Case-Shiller (Index Ratio)
January 2013	—	—	103.5	107.6
December 2012	—	18.86	103.1	106.7
November 2012	—	—	102.7	105.8
October 2012	—	—	102.4	105.4
September 2012	—	18.86	102.0	104.9
August 2012	—	—	102.1	104.6
July 2012	—	—	102.0	104.3
June 2012	—	18.86	102.0	104.2
May 2012	—	—	101.5	103.4
April 2012	—	—	101.0	102.6
March 2012	—	18.86	100.5	101.7
February 2012	—	—	99.3	101.6
January 2012	—	—	99.2	101.6

Rent-to-Mortgage Payment Ratio

The rent to mortgage ratio is simply the adjusted rent divided by a 100% loan-to-value mortgage payment (i.e. a mortgage with no down payment). A value below 1.0 means that rent is less than the monthly mortgage payment when the loan value is the full price of the home. Unlike the price-to-rent or price-to-income ratios, the rent-to-mortgage payment ratio accounts for the cost of money by incorporating the mortgage payment based on current 30-year fixed rates. As of December 2012, the Realtor rent-to-mortgage payment ratio for the US is 1.00.

Rent-to-Mortgage Payment Dollar Ratio: FHFA, Realtor

Rent-to-Mortgage Payment History

Date	FHFA (Dollar Ratio)	Realtor (Dollar Ratio)
December 2012	—	1.00
September 2012	—	0.98
June 2012	—	0.96
March 2012	—	0.93
December 2011	—	0.99
September 2011	—	0.97
June 2011	—	0.93
March 2011	—	0.89
December 2010	—	0.86

Inferred Affordable Mortgage

This analysis of affordability backs out the amount a household could borrow given a monthly mortgage payment equal to 30% of the median household income with a 30 year fixed-rate loan. Traditionally, 30% of income is the maximum amount a homeowner could use towards a home loan. You can think of it as a first order estimate of the maximum amount a household could borrow to purchase a home. The values are not adjusted for inflation.

Inferred Affordable Mortgage

Inferred Affordable Mortgage History

Date	Inferred Mortgage
January 2013	$281,812
December 2012	$283,937
November 2012	$283,937
October 2012	$282,872
September 2012	$278,669
August 2012	$275,236
July 2012	$276,945
June 2012	$272,534
May 2012	$268,554
April 2012	$264,981
March 2012	$263,699
February 2012	$265,625
January 2012	$264,659

1. More specifically, home prices are from NAR metro prices and the FHFA. The two home price indices are the seasonally adjusted Case-Shiller 20 city composite index and the seasonally adjustedFHFA purchase only index. Median household income is from the Census CPS. Rent is from theCensus ACS for dollar ratios and OER for index ratios. Rent and income data for the previous year is carried into the following year for calculations prior to release of new data. ↩

2. The adjusted rent ratio is calculated by adjusting the median contract rent by the ratio of median owner occupied household size to the median renter occupied household size. More on the adjustment process here. ↩

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