Understanding Housing Affordability Index in today’s market
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If you’ve been keeping up with the latest news on the housing market, you’ve likely heard a lot about the Housing Affordability Index (HAI). But what exactly is the Housing Affordability Index, and how does it affect your chances of buying a home in the United States?
What is the Housing Affordability Index (HAI)?
HAI is a key indicator that helps us understand whether the typical American family can afford to buy a median-priced home or not. That is to say, the index measures whether a family earning the average income has enough money to qualify for a mortgage loan on a median-priced home.
In other words, it’s a way to see if the average household income is sufficient to afford a home without stretching the budget too thin.
And, this HAI data can be found on the websites of organizations such as the National Association of Realtors (NAR), government agencies, and other real estate market research firms. You may also be able to find regional data on your local real estate boards and associations.
Why is the HAI important?
The HAI is important because it provides a snapshot of how affordable housing is in a particular market. It helps buyers understand whether they can afford to buy a home there or not. It also guides policymakers in assessing housing market health and making decisions about housing policy.
How does HAI work?
The idea behind the index is to see if a typical family earning the median income has enough money to afford the mortgage payments on a median-priced home with current interest rates.
Here’s how the index works: a value of 100 means that a family earning median family income can afford the housing cost associated with buying a single-family home at the median home price. If the index goes above 100, the home is more affordable because the typical family makes more money than they need to cover the mortgage. If it’s below 100, the home is less affordable because the family doesn’t earn enough to comfortably cover the housing costs.
So, in simple terms, the HAI measures if the average family can afford to buy a home at today’s prices and interest rates. The higher the number, the more affordable housing is for the average family.
HAI is typically updated monthly or quarterly by various organizations, such as the National Association of Realtors (NAR) in the United States. Although, the frequency of updates can vary depending on the source and location.
How is the housing affordability index calculated?
HAI is calculated by looking at three main things: home prices, household income, and interest rates. Here’s how it works in simpler terms:
- The index starts with the median price of a single-family home. This is the middle price of all homes sold, meaning half the homes sold for more and half for less.
- Next, it looks at the median family income—that’s the middle income for all families, where half of the families earn more and half earn less.
- Finally, the index takes into account the interest rates on a typical mortgage loan. Interest rates determine how much you’ll end up paying on top of the amount you borrowed to buy the house.
Read more: What is the FHFA house price index
How do interest rates and home prices affect affordability?
When home prices go up, or when mortgage rates increase, the housing cost rises, making it harder for families to afford a home. Conversely, when home prices fall or interest rates decrease, homes become more affordable, pushing the index higher.
In recent years, we’ve seen both home prices and mortgage rates fluctuate significantly. For instance, in many metropolitan areas, the demand for single-family homes has driven prices up, while interest rates have been on a rollercoaster, making it a challenging time for buyers looking to qualify for a mortgage.
What is the role of income in housing affordability?

While home prices and mortgage rates are critical, household income plays an equally important role. To determine if a home is affordable, the index considers whether a typical family earning the median income can afford the monthly mortgage payments. If a family earns less than the median family income, they may find it difficult to meet the financial requirements to qualify for a mortgage.
This is particularly true in high-cost metropolitan areas, where the gap between median family income and the cost of a median-priced home can be significant. In these regions, even families who are earning the median income might struggle to find affordable housing options.
What does this mean for homebuyers?
If you’re looking to buy a home, understanding the HAI can give you a clearer picture of the market. It can help you gauge whether you’re likely to find affordable housing in your desired area. Or if you might need to adjust your expectations. If the index is low in your region, it might be a sign to either wait for home prices to come down or consider different financing options to make the mortgage payments more manageable.
Read more: Key indicators every homebuyer should know
Is HAI a good indicator for real estate investment?
While the HAI can offer insights into housing affordability trends, it is just one of many factors to consider in real estate investment. Investors should also consider other metrics such as rental yields, property appreciation, and economic conditions.
What are some tips for navigating the housing market today?
Navigating today’s housing market can be challenging. But, here are some tips to help you make the most of it:
- Keep an eye on interest rates, as even a slight change can affect your mortgage payments significantly.
- Understand your homebuying budget. You need to calculate how much you can afford based on your household income. Remember, loan lenders will look at your income to determine if you qualify for a mortgage. So, it’s crucial to have a realistic understanding of your finances.
- If home prices are too high in your preferred metropolitan area, look at nearby locations where housing might be more affordable.
- Explore different mortgage loan types and government programs. Some might offer lower interest rates or require smaller down payments, making it easier for you to buy a home.
Last thoughts
The Housing Affordability Index is more than just a number. It’s a valuable tool that helps us understand the current state of the housing market in the United States. By keeping an eye on the HAI, home prices, and interest rates, you can make more informed decisions and increase your chances of finding a home that fits within your budget. Whether you’re looking for a single-family home or any other type of property, staying informed and flexible is key to navigating today’s challenging real estate market.
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