Many people dream of owning a home. Unfortunately, there are quite a few that have no hopes of ever achieving that goal because they simply cannot afford to do so. One silver lining of the past recession is that home prices dropped significantly. This brought them down enough to help many people be able to afford their own home. But, along with dropping housing prices, incomes dropped dramatically as well. Currently prices are on the rise, and one would think that affordability is declining. However, that is not the case.
It is true that recently home prices have risen. However, there are also more people that have found, or retained, employment. This means that more people are earning money, and more people are earning a higher wage than they have in years past. Higher incomes mean they can afford more homes. Combine the fact that more people are earning more money with the fact that interest rates for mortgages have fallen by about 1% from last year and you have a housing market that is becoming more affordable. Even saving the 20% for a down payment is no longer necessary, so basically anyone who meets the income criteria can get into a home.
The increase in housing affordability means that more homes are selling on the market as new homeowners are drawn to the market. The more homes that sell, the better it is for the economy. The housing market was a major cause of the last recession, and it is a major lag in the recovery. But as many more homes are being sold, they are becoming more affordable at the same time, and the overall economy is starting to pick back up. The process is cyclical. More homes being built means more jobs; more jobs means more people have an income to spend, more income means more people buying houses, a greater demand for houses means more homes being built.
The Housing Affordability Index, from Realtor.org, takes into consideration not just the price of homes, but also the average income of those who would be most likely to purchase a home. While it may seem that if the average cost of a house goes up, homes would be less affordable. But in fact if incomes increase faster than the rate that home prices increase, affordability also increases. Overall, more affordable housing means that more people are getting into homes. And when houses are moving, that is good for the economy.