As promised in the Daily Data Discussion post yesterday and today, we’re going to take a look at single family affordability measures in some detail over the next few days.

It doesn’t matter if you’re a multifamily investor, pending homeowner, or single family investor – the issue of housing affordability is a critical one that you must understand. 

There is no question that housing affordability has become a topic of much greater interest during the past two years – and we feel deservedly so. Our team has in fact gone on record as stating that we agree with those who have opined (such as Cyrix Moulle-Berteaux) that order will not be restored in the most disordered markets until rational affordability is restored. Time will indeed tell.

We need to go on record stating right off the bat that we feel, as do many, that the current measures of affordability are weak, based in some respects on potentially misleading measures, and prone to misinterpretation.  On the other hand, there is not a perfect or ideal measure of affordability available currently, and so we all need to make due with measures that are available, and understand their inherent limitations. 

Of course to discuss the issue of housing affordability some measure or measures of affordability must be agreed upon. We follow the Housing Affordability Index (HAI) as well as the Wells Fargo / National Association of Home Builders Housing Opportunity Index (HOI) as both are for the most part widely accepted measures of affordability in markets. We will take a detailed look in this series at the Housing Affordability Index.

The concept of housing affordability in most venues refers to the capacity to purchase a single family dwelling (home or condo), which critically revolves around the ability to qualify for the purchase mortgage. The Housing Affordability Index is further based upon the ability of the median-income earning family to purchase the median-priced, existing home in a given market, using standard and conventional financing guidelines.

Tomorrow we’ll take a look at what the index means and how most of the HAI indices are derived.

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