VAR & Housing Virginia partner to create a Virginia Housing Affordability Index

NAR’s Chief Economist, Lawrence Yun, says that today’s homes are more affordable than at any time in the past 40 years. But as the economy improves, expect housing prices to rise again, making homeownership less affordable. VAR and Housing Virginia recognize the need to keep housing within reach for those want to pursue (and understand the responsibility of) the American dream of homeownership.

To help housing advocates and state officials understand trends in housing affordability, VAR, local Multiple Listing Services (MLSs) in Virginia, and Housing Virginia are partnering to create a quarterly Housing Affordability Index. The initiative was announced at the Governor’s Housing Conference.

Details after the jump. Housing Virginia, a statewide non-profit entity dedicated to affordable housing and the Virginia Association of Realtors (VAR), announced today a joint effort to produce of a quarterly Housing Affordability Index (HAI) for Virginia beginning in 2010. The announcement of the HAI took place at a press conference held during this week’s Governor’s Housing Conference in Norfolk.

The HAI is a broad measure of housing affordability that examines the relationship between both buyers’ and renters’ housing costs and their household income. This is the first housing index in the nation to consider both buyer and renter affordability on a statewide basis. The overall HAI reflects the relative supply and affordability of owner and renter housing. “Basically what we’re looking at is presenting the percentage of a typical Virginia household’s income necessary to afford the typical home in Virginia,” explained Scott Brunner, CEO of the Virginia Association of Realtors.

The Virginia Center for Housing Research at Virginia Tech is conducting the analysis, which will relate the affordability of housing across the Commonwealth based on median sales price of homes sold and median rent paid to the median household income of families. The HAI will be available for individual market areas (counties and cities) as well as regions across the Commonwealth.

The median-priced, existing single-family home is produced from local Multiple Listing Service data calculated by area in the Virginia Association of Realtors’ quarterly Virginia Home Sales Report. The typical family income is defined as the median household income in an area as reported by the U.S. Bureau of the Census.

“In general, areas where the median housing costs require less than 30% of the median household income are considered more affordable, and areas where housing costs exceed 30% of household income are considered less affordable to the typical family,” said Kit Hale of Roanoke, chairman of Housing Virginia.

For example, taking 30 percent of income as the baseline for affordability, a median-income family earning $60,000 and paying 30% of their income for housing could expect to pay $18,000 in housing costs annually; That amounts to $1,500 per month for rent or mortgage principal, interest and taxes. Likewise, a median-income household earning $45,000 could expect to pay $13,500 in housing costs annually or $1,125 per month.

“As Virginia Realtors, we work to find the best housing option for each consumer we serve. For some that may be renting; for others, it may mean helping another family achieve the American dream of homeownership,. Regardless of which alternative a consumer wants or needs, we believe the new statewide affordability index will give consumers a useful tool and a truer picture of housing costs in today’s Virginia markets,” said VAR President Cindy Stackhouse of Dumfries.

“The board of directors of Housing Virginia has long believed that housing affordability is an issue that affects everyone. Housing affordability has a tremendous impact on our economy and the quality of life in our communities, right down to questions of whether our firefighters and school teachers can afford to live in the communities where they work,” added Hale.

The first Housing Affordability Index is expected to be released in January 2010, and should reflect housing data from the final quarter of 2009.

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2 Responses to VAR & Housing Virginia partner to create a Virginia Housing Affordability Index

  1. Lenn Harley says:

    I submitted a thoughtful comment to this post and it seems to have disappeared. What am I doing wrong???

    Lenn Harley

  2. Lenn Harley says:

    I am of the opinion that housing “affordability”, in terms of what can the consumer afford, cannot be indexed by any set of criteria using median housing statistics or median consumer statistics.

    First, they presume that “affordability” can be determined by a simple mathematical formula of a percentage of income. This reminds me of the 20 year old “rule of thumb” that a consumer is qualified for a home priced at 3 times their gross income. It didn’t work 20 years ago and won’t work now.

    What these simplistic indices do is make qualifying for housing by price as simple as a percentage of a consumer’s income which ignores local taxes, hyper-local hazard insurance costs, transportation costs, family size and so many more things that affect a consumer’s ability to “afford” the purchase of real estate.

    Dr. Yun’s statement that “today’s homes are more affordable than at any time in the past 40 years”, is simply not, in my opinion, true, or should I say accurate. Dr. Yun is a positive voice for the NAR, yet when applied to the consumer, it is misleading and encourages real estate practitioners to avoid the hard work of really qualifying home buyers. If homes are more affordable, the use of a simple 30% index of affordability might work. However, when taxes, insurance, transportation, consumer goods, groceries etc. are less affordable, the use of a simple percentage of affordability misleads the consumer and many real estate agents.

    It saddens me that resources are used to promote simplistic systems and reports to convince the consumer that “yes, you can” without any solid foundation on which to accurately “qualify” disparete individuals without consideration of house type, location, family size, extended families, other contractual debts and more.

    I would suggest that the consumer would be better served by NAR and VAR members who received quality training to qualify home buyer, a topic for which I see few and rare Continuing Education courses.

    I believe that there is a void in our industry and that is the ability of the average real estate agent to understand just what a prospective home buyer’s “affordability index” is based on the individual consumer’s financial profile. Trying to fit median buyers into median housing price statistics will produce more confusion for the consumer.

    Lenn Harley

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