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Thursday, January 27, 2022

Real House Prices, Price-to-Rent Ratio and Price-to-Median Income in November

by Calculated Risk on 1/27/2022 12:00:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Real House Prices, Price-to-Rent Ratio and Price-to-Median Income in November


I’ve put together my own affordability index - since 1976 - that is similar to the FirstAm approach (more of a house price index adjusted by mortgage rates and the median household income).

I used median income from the Census Bureau (estimated 2021), assumed a 15% down payment, and used a 2% estimate for property taxes, insurance and maintenance. This is probably low for high property tax states like New Jersey and Texas, and too high for lower property tax states. If we were including condos, we’d also include HOA fees too (this is excluded).

For house prices, I used the Case-Shiller National Index, Seasonally Adjusted (SA). Also, for the down payment - there wasn’t a significant difference between 15% and 20%. For mortgage rates, I used the Freddie Mac PMMS (30-year fixed rates).

Case-Shiller MoM House Prices
So here is what the index looks like (lower is more affordable like the FirstAm index)
In general, this would suggest houses are somewhat affordable right now (due to low mortgage rates). But this says nothing about if “now is a good time to buy” (see the bottom of my post Housing: A Look at "Affordability" Indexes).

Also, in November, the average 30-year mortgage rates were around 3.071%, and currently mortgage rates are close to 3.74% - so we already know the “Affordability Price Index” will increase over the next couple of months (meaning houses are less affordable).
emphasis added