Is U.S. Housing unaffordable?

Well, what really matters is whether your house is affordable to your income!

 

That said, this Wall Street Journal article presents the facts from a historical perspective stating that “Rising home prices and interest rates made housing less affordable last year than at any time in the last five years, according to data released Tuesday by the National Association of Realtors.” They are basing this conclusion off of two charts.

The first chart titled “Ratio of median U.S. home prices to household incomes” suggests that the Housing Affordability Chartaffordability of housing can be tracked by the number of times your annual income the value of your house is. In the 1990’s that number hovered around 3 times; for example, if your income equals $50,000, this would imply a house worth $150,000. During our real estate hay day in the mid 2000’s, it peaked over four times income – obviously less affordable. With falling housing prices and lower interest rates the affordability measure fell to 2.5 times in 2011 and due to rising housing prices and rising interest rates, we are again, above 3 times annual income; implying that housing is less affordable now than at any time in the previous 5 years.

The article goes on to discuss the affordability of mortgage payments based on the percentage your principle and interest payments are as compared to your monthly income. This is the second chart and it suggests that while it is on the increase, it is still well below historical norms. For the visual aid of the second chart and to read the full article, click here.

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