Affordable Housing Index drops in March
By John McPhaul
jpmcphaul@gmail.com
The Affordable Housing Index, prepared by Estudios Técnicos Inc. (ETI), decreased in March after the continuous increase in house prices and a deterioration, due to inflation, of the purchasing power of consumers, making it difficult for them to qualify for loans and mortgages, the think tank announced Monday.
Economist Leslie Adames, director of analysis and economic policy at ETI, reported in a written communication that “in recent months the Affordable Housing Index has deteriorated, reaching 69 percent in March 2022, a reduction of 31 percentage points since March 2020.”
“In other words, the typical family has only 69 percent of the income needed to qualify for a home loan, considering a 20 percent down payment,” the ETI said.
The Affordable Housing Index, prepared by ETI, measures whether or not a typical family that contributes a 20% down payment toward the purchase of a home qualifies, based on median income, for a mortgage loan. A value equal to 100% means that the family has the necessary income to qualify for a mortgage loan based on the prevailing average price in the market. A value above that threshold assumes a family has more than enough income to qualify for a mortgage loan, while values below the threshold reflect the opposite.
Adames noted that the Index stood at 61% in January 2011 and had been gradually improving, reaching a maximum value of 100% in March 2020.
“This improvement is attributed to the historically low interest rate levels that prevailed in the market during this period, as well as the correction in prices experienced by the real estate market,” he said.
“Without a doubt, the increase in the average price of homes and deterioration in purchasing power due to inflation already affect the ability of people to buy homes,” the economist continued. “Figures released by the Office of the Commissioner of Financial Institutions [OCIF] show that total home sales contracted from 3,286 in the first quarter of 2021 to 2,776 in the first quarter of 2022, primarily attributable to an 18% contraction in unit sales of used homes.”
Adames highlighted that the Index reflects that the most recent figures published by OCIF as of March considered an average sale price of $193,813 and a 30-year fixed interest rate of 4.17% for March.
“The outlook could be complicated in the next year if the upward trend in the interest rates of mortgage loans with 30-year fixed rates continues,” Adames said. “This rate has already exceeded 6% and will be an additional factor that will add pressure on housing affordability in the local market.”