The Housing Affordability Index (HAI) is a critical measure that tells us if a typical family earns enough income to qualify for a mortgage on a median-priced home.
As home prices and mortgage rates fluctuate, affordability becomes a key factor for homebuyers navigating the market.
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In this blog, we'll explore 2024 HAI trends, analyze affordability data, and discuss how buyers can use this information to make smarter decisions.
What Is the Housing Affordability Index?
The HAI measures whether a family with a median income can afford the mortgage payments on a median-priced home.
A score of 100 means they can just afford it; higher scores indicate greater affordability.
The calculation considers three factors:
- The median home price.
- The median family income.
- Current mortgage interest rates.
For example, in Q3 2024, the national HAI for first-time buyers was 65.8, while the composite index stood at 99.3.
These scores highlight a significant affordability challenge, with fewer families able to purchase homes compared to previous years.
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National Affordability Trends in 2024
The HAI data for 2024 reveals some sobering trends. Compared to earlier years, home affordability has declined sharply due to higher mortgage rates and rising home prices. Let's break down the numbers:
- In 2021, the first-time buyer index was 97.6, but by Q3 2024, it had dropped to 65.8.
- The composite index showed a similar decline, from 148.2 in 2021 to 99.3 in Q3 2024.
- Median home prices have risen from $303,500 in 2021 to $355,900 in Q3 2024, while mortgage rates climbed from 3.01% to 6.59%.
The result? Monthly mortgage payments for median-priced homes have nearly doubled, making homeownership increasingly out of reach for many families.
Regional Affordability: Winners and Losers
Regional HAI data paints a diverse picture. While some areas remain relatively affordable, others are becoming prohibitively expensive. Here are a few examples:
Affordable Markets
Decatur, IL, and Youngstown, OH, consistently rank as some of the most affordable metro areas.
In Decatur, the HAI score in Q3 2024 reflects that median-income families can easily afford homes in the area.
Challenging Markets
Miami-Fort Lauderdale, FL, and San Francisco, CA, have some of the lowest affordability scores due to skyrocketing home prices and high demand.
Miami's median home price in Q3 2024 reached $66.3, with an HAI far below the national average.
These regional differences underscore the importance of local market knowledge when planning to buy a home.
The Impact of Rising Mortgage Rates
Mortgage rates are one of the biggest drivers of affordability. In 2024, the average 30-year fixed-rate mortgage hovered around 6.59% in Q3, a significant jump from 3.01% in 2021. This increase has a compounding effect:
- A 1% rise in mortgage rates reduces buying power by approximately 10%.
- For a $300,000 loan, monthly payments increase by over $200 when rates rise from 3% to 6%.
Higher rates mean that even with stable incomes, buyers are finding it harder to qualify for loans, let alone afford the monthly payments.
What Does This Mean for First-Time Buyers?
First-time buyers are particularly affected by declining affordability. With an HAI score of just 65.8 in Q3 2024, they face steep challenges:
- Many lack the savings for higher down payments, further limiting their options.
- Rising rents make it harder to save, pushing homeownership further out of reach.
- Competition for lower-priced homes is fierce, often leading to bidding wars.
Despite these challenges, programs like FHA loans, which require lower down payments, can help first-time buyers bridge the gap.
How Buyers Can Navigate a Tough Market
While the affordability landscape is daunting, there are strategies buyers can use:
- **Adjust Expectations:** Consider smaller homes, fixer-uppers, or less competitive markets.
- **Explore Assistance Programs:** Down payment assistance and low-interest loan programs can make a difference.
- **Lock in Rates:** With rates potentially rising further, locking in a rate sooner rather than later can save thousands over the life of a loan.
Looking Ahead: What's Next for Affordability?
Experts predict that housing affordability will remain a challenge in 2025. While income levels are expected to rise modestly, home prices are unlikely to decrease significantly due to ongoing inventory shortages.
However, if mortgage rates stabilize or decline, affordability could improve slightly. For now, buyers should focus on preparation and flexibility.
Take the First Step Toward Your Dream Home
Don't let affordability challenges discourage you.
By understanding the Housing Affordability Index and using the right strategies, you can navigate today's housing market with confidence.
Verify Your Home Purchase EligibilityWith over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.
About Author - Phil Ganz
Phil Ganz has over 20+ years of experience in the residential financing space. With over a billion dollars of funded loans, Phil helps homebuyers configure the perfect mortgage plan. Whether it's your first home, a complex multiple-property purchase, or anything in between, Phil has the experience to help you achieve your goals.
About Editor - Ryan Skerritt
Ryan Skerritt has over 10+ years of experience in the residential financing space. With over two hundred and fifty million of funded loan volume, Ryan has the skill set to help any homebuyer configure the perfect mortgage plan.
