October 1, 2018

FHFA Releases New Homebuyer Affordability Measure and Data

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Last week, the Federal Housing Finance Agency (FHFA) released a new measure for homebuyer affordability, called the Housing Affordability Estimate (HAE). The HAE reports the share of recently-sold housing that is affordable to households based on their income, expected costs, and assets available for down payment.

  • The new metric features several improvements over existing estimates of housing affordability for potential home-buyers:
  • Rather than just reporting the share of housing affordable to buyers earning the median income for their metro area, the HAE also calculates the share of housing affordable to low-income (80 percent of median) and very low-income (50 percent of median) buyers.
  • The HAE uses the FHA’s minimum 3.5 percent down payment ratio, instead of the more conventional 20 percent down payment, and bases its calculations on actual assets held by households at different points in the income distribution.
  • The HAE factors in total housing and non-housing expenses when determining minimum income needed to cover monthly principal, interest, taxes and insurance.
  • Finally, the HAE forecasts future housing costs and incomes for three years following purchase, to determine whether a home purchased now is likely to remain affordable in the short term.

The new HAE shows changes in housing affordability since 1991, both nationally and for 50 of the largest metropolitan areas. At the national level, the share of houses affordable at all three income levels assessed exhibited similar trends through the 1990s – slight increases in the early part of the decade becoming steady through the mid-1990s, followed by a slight bump up before quickly reverting to trend by 2000.

National Housing Affordability Estimates by Income (1991-2018)

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Rising house prices in the early and mid-2000s reduced affordability dramatically at all income levels, though median-income households were the first to be impacted and had larger declines relative to lower-income households. As a result, the gap between the share of homes affordable at all three income levels was narrowed to just a few percentage points. With the onset of the Great Recession, house prices declined and affordability improved, though this time it was very-low income households who diverged from the trend, with their share of affordable homes rising by less and peaking two years earlier than among low- and median-income households. Since 2014, the share of homes affordable for all three income levels have again stabilized, though the gap between median/low-income and very-low income households has remained wide.

The HAE also shows differences in current levels of affordability by income across the 50 metropolitan areas it tracks. While affordability is low for all income levels in the highest-cost markets, the share of homes affordable is at least three times greater among median-income versus very-low income households (Note: in the San Francisco and Anaheim, CA metro areas, no recently-sold houses are affordable to very-low income households, so their ratios of homes affordable to median-income households are mathematically infinite).

 Ratio of Share of Homes Affordable to Median and Low/Very Low-Income Households in the Ten Least and Most Affordable Metro Areas (Q2 2018)

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In lower-cost markets with better overall affordability, the gap between median and very-low income households is less extreme, with the share of homes affordable to the former less than twice that of the latter. The ratio of homes affordable to median and low-income households, meanwhile, shows less variation across metro areas, reflecting the national trend of narrow gaps in the share of affordable homes at these two income levels.

This data corroborates recent observations in many housing markets about declining affordability, especially for homebuyers at the lower end of the income distribution. Recent research by Enterprise, for example, details how a lack of affordable housing contributes to lower homeownership rates among low-income households relative to those earning more than the median.

Enterprise is also currently supporting efforts to increase homeownership among low-income Native Americans in tribal areas and promoting housing finance reform measures that improve access to mortgage credit for affordable single-family and multifamily homes, as part of our commitment to expanding affordable housing options for low-income households across the country.

Stay tuned to the Enterprise blog for more research on housing affordability, and sign up for our newsletters to stay up to date on affordable housing and community development news.

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