There’s a current narrative that owning a home today is less affordable than in the past. The reason some make this claim is because house prices have increased substantially the last several years. It’s not  just the price of a home that matters, however.

Most homes are purchased with a mortgage, and the current mortgage rate is a major factor in the affordability equation. Mortgage rates have fallen by nearly two percentage points in the last year and one-half.  Another major affordability factor is a buyer’s income. The median family income has risen by approximately 6% during the last two years.

The National Association of Realtors (NAR) Housing Affordability Index, in the first graph, shows that home affordability is better today than at almost any point over the last 30 years.

“A Home Affordability Index value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index of 120 signifies that a family earning the median income has 20 percent more than the level of income needed pay the mortgage on a median-priced home, assuming a 20 percent down payment so that the monthly payment and interest will not exceed 25 percent of this level of income (qualifying income).”

The higher the index, therefore, the more affordable homes are. In the second graph on the left are data since the 1990's.  Again, we can see that affordability is much better today than the historical average and has been getting better over the last year and a half.