US home affordability drops in 2nd qtr - Realtors

U.S. home affordability in the second quarter of 2005 fell from the prior quarter and also was down from the second quarter of 2004, an industry group said on Wednesday.

The National Association of Realtors said its housing affordability index dropped to 120.8 in the second quarter from 133.2 in the first quarter. It marked a sharp decline from the second quarter of 2004 when the index stood at 132.3.

The housing affordability index measures the ability of a family earning the median income to buy a home at the median price.

Even with this drop in purchasing power, the country's home-buying stampede hasn't slowed. Last week, the NAR reported sales of existing U.S. homes reached a seasonally adjusted annual rate of 7.33 million in June and home prices jumped 14.7 percent, the largest increase since 1980. The Commerce Department also said sales of new U.S. homes rose 4 percent in June to an annual pace of 1.374 million.

When the index measures 100, a family earning the median income -- the level at which there are an equal number of families both above and below -- has exactly the amount needed to buy a single-family home at the median price, using conventional financing and a 20 percent down payment.

A higher index means a median-income family has more money than would be needed for a median-priced home. In the second quarter, the median family income was $56,917 and the median price of a single-family home was $208,500, NAR said.

A typical family could afford a home costing $251,900, well above the median price, NAR said. In the first quarter of 2005, median income stood at $56,323 and the median home price was $188,300.

"The strong rate of home price appreciation caused some erosion in affordability conditions," David Lereah, chief economist for NAR, said in a statement, "yet it hasn't dampened the market because the second quarter was a record for existing-home sales."

The average effective mortgage interest rate for existing homes was 5.83 percent during the quarter, up from 5.77 in the first quarter and 5.73 in the second quarter of 2004, NAR said.

The first-time buyer index, which shows the ability of renters to qualify for a mortgage, dropped to 70.1 percent in the second quarter from 76.8 percent in the prior quarter. During the same quarter in 2004, the index hit 77.1.

"The index number doesn't tell the whole story," said NAR President Al Mansell in a statement. "For example, our survey data shows the median down payment by first-time buyers is only 3 percent, and more than four out of ten are purchasing with no money down."

When the index was created in 1980, the median first-time home buyer paid a down payment of 10 percent.

The latest reading meant a typical first-time buyer, age 25 to 44 with a median income of $32,443, had 70.1 percent of the income needed to purchase a typical starter home with a 10 percent down payment.

The median starter home price was $177,200 during the second quarter, up from $160,100 in the first quarter.