In recent years, housing affordability has become a common phrase in news coverage and policy discussions throughout the United States. While financial circumstances are always unique to each individual, understanding the factors that impact the ability of an average family to afford a home where they reside is critical. 

The most recently released data shows that housing affordability has hit a three-year high. While this is encouraging news for first-time homebuyers, it is also a reason for current homeowners to consider taking advantage of what the increase in housing affordability could offer to them. 

Housing Opportunity Index

Housing affordability is commonly measured by the Housing Opportunity Index (HOI). The HOI determines what percentage of homes sold in a particular area could have been afforded by a family earning the local median income and given current lending conditions. 

The quarterly data for the third quarter of 2019 resulted in an HOI of 63.6 percent, up from 56.9 percent in the prior year. The increase in affordability was largely driven by historically low interest rates, as the home prices tracked by the index have actually increased over the same period. 

Falling Interest Rates

For current homeowners planning to stay put for the long term, rising affordability due to sinking interest rates could signal that it’s time to refinance. A reduction in mortgage interest rates could result in significant savings if it reduces your payment drastically enough, and for long enough, that it offsets the costs of refinancing. 

While income growth can also have a positive effect on housing affordability, a decrease in interest rates or housing costs means that buyers’ dollars go farther. Keeping an eye on the HOI can provide helpful insight into the real estate market in your area, but knowing the specific factors influencing it can determine the best opportunities for you. 

Reverse Mortgage Advantages

The uptick in affordability also bodes well for homeowners over the age of 62 and who may be considering their Home Equity Conversion Mortgage (HECM) options. The combination of plunging interest rates and rising home values can be a win-win for these borrowers. 

A HECM, commonly called a reverse mortgage, gives owners access to their home’s equity without requiring them to sell the property. As home values increase, so does the equity available to them. The drop in interest rates can make accessing more affordable.

If the recent trend in housing affordability has you wondering about your mortgage options, browse our website or call to speak with an experienced representative.