Morning Briefing: How accurate is all that ‘affordability’ data anyway

by Steve Randall03 Aug 2016
How accurate is all that ‘affordability’ data anyway?
Barely a day passes without a new report on the affordability of America’s housing markets but is the data which forms their basis reliable?
A new study by the Research Institute for Housing America (RIHA) looks at four of the major forms of affordability indexes and concludes that none provides a definitive result.

"There are many conceptualizations of how to measure housing affordability and there are many affordability indexes. All measures are based on judgments of which components of housing costs should be included and judgments about when these costs should be considered excessive," said the study’s author, Donald R. Haurin, Professor of Economics, Emeritus, Ohio State University. "This study reviews existing theory and empirical work about the affordability of owner-occupied housing. It concludes that only a few affordability indexes are well grounded in economic theory, although all contain ad hoc assumptions."

The indexes examined include the National Association of Realtors' Housing Affordability Index, the National Association of Home Builders' Housing Opportunity Index, and the new Dynamic Housing Affordability Index (DHAI), using data from 2003-2014.

While the DHAI was found to better predict housing starts and sales of new and existing homes; but none of the indexes predicted the steady decline in homeownership after 2004.
Prices up 5.7 per cent in June
CoreLogic’s national home price index shows a 5.7 per cent rise year-over-year in June with a 1.1 per cent increase from the previous month.

“Mortgage rates dipped in June to their lowest level in more than three years, supporting home purchases,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Local markets with strong economic growth have generally had stronger home-price growth. Among large metropolitan areas, Denver had the lowest unemployment rate and the strongest home-price appreciation.”

Expectation is for home prices to continue to appreciate strongly with a rise of 5.3 per cent for the 12 months to June 2017 and the monthly rise from June to July 2016 is predicted at 0.6 per cent.
Mortgage credit availability reduced
Mortgage credit availability was lower in the first three months of 2016 compared with the last quarter of 2015.

The Housing Finance Policy Center’s index showed a decline to 5.4 per cent (from 5.6 per cent) showing that mortgage lenders were tightening lending conditions.

The center’s data shows that in the government-sponsored enterprises channel mortgage credit availability remained at near record highs and that there is space to “safely expand the credit box” while remaining within the pre-crisis standard.


Should CFPB have more supervision over credit agencies?