Nationwide Home Affordability Remains High for Some

The latest data from the Home Builders/Wells Fargo Housing Opportunity Index shows that nationwide home affordability remains high for some.

Although this is good news for potential home buyers, not all those looking for a home will be able to purchase one. According to the report, 73.7% of new and existing homes were sold to families who earned a median income of $64,400 during the first quarter of 2013. This has dropped from 74.9% during the last quarter of 2012. "Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies," noted National Association of Home Builders (NAHB) Chairman Rick Judson, a home builder from Charlotte, N.C. "This is definitely an encouraging sign even amidst rising challenges with regard to the cost and availability of building materials, lots and labor."

Even with home affordability still within a range that is considered high, rising real estate prices are having an affect on many home buyers. According to the recent Standard & Poors/Case-Shiller Home Price Indices, real estate prices in 20 major metropolitan markets rose 9.3% year over year and have had the highest annual gain since May 2006. However, this is a different market today where mortgage rates are considerably much less than in 2006.

Even though the affordability index is high, homeownership continues to decline. According to the Census Bureau, the share of Americans who own their homes during the first quarter of 2013 was at 65%, a decrease from 65.4% last year. The current level is the lowest since the third quarter of 1995. While low mortgage rates may be fueling affordability, credit is tight and many consumers cannot obtain mortgage approval for a home purchase or a traditional refinance. While reports show that home prices are rising, many homeowners remain underwater. There are still many consumers struggling through this housing recovery.

For every positive piece of data, there remains conflicting information when it comes to the housing market. Many homeowners who have already refinanced through the HARP loan program are beginning to gain back equity in their homes as home prices increase, although those who bought at the peak of the market may not be seeing a complete turnaround just yet. Affordability has no impact on these homeowners who most likely will remain in their current homes until they are no longer underwater. At a time when home affordability remains high, FHA loans, which are commonly used by first time homeowners, increased the annual mortgage insurance premium in April, making it more difficult for some home buyers to afford a purchase. Although FHA mortgages are for low to middle income households, rising premiums are pushing many of those within these groups away from homeownership and back into renting. According to Ellie Mae's Origination Insight Report, FHA loans made up 22% of loan originations for April.

Without a doubt, there are those who are reaping the benefits of affordability. Low mortgage rates, a major component of affordability, are available even for jumbo loans for high end property purchases. This segment of the housing industry, which is faced with less borrower unemployment issues and better income stability, has seen a major improvement that began in 2012.

Since last year, home affordability has been high, however, nationwide homeownership has not improved. Without everything in place, including the availability of credit, affordability will not make much of a difference for the masses. Further, without the increase in residential homeownership, there may not be a full, sustainable recovery taking place.

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