One of the indicators of a shifting real estate market is the aspect of affordability. What is affordability and what does it mean for buyers and sellers? Affordability is simply a measure of an individual’s or family’s financial ability to buy a home. Affordability can be a good economic indicator for any market but it is different for each market. An Affordability Index (AI) can help you assess your needs as a real estate buyer or seller. You can calculate an AI in any market, as follows:
AI = Median Income / Income to Qualify x 100
Income to qualify for a conventional mortgage – a median priced home less 20% downpayment, then take 25% of that to see the required income.
In short, the closer an index to 100, the better: If the index is over 100 – homes are very affordable; if the index is less than 100 – home prices are starting to exceed affordability. Eugene’s index is 95.8 – not bad, all things considered!
If you have any questions about these formulas and what they mean to you regarding your real estate decisions, contact me.