The Real Housing Affordability Index for the US housing market starts in 1998 2Q, when the US Treasury began the issue of 30-year Treasury Inflation Protected Securities. The present document offers an estimation of the Real loan payment (see RHAI Methodology) before that date.
The median house price is the result of an estimation taking into account data from the Federal Housing Finance Agency (FHFA). Main sources are the “Quarterly Average and Median Prices for States and U.S.: 2000Q1-2010Q2”, the Expanded-data and All-Transactions indexes. Median income is the median family income according to the US Bureau of the Census reports. Estimations for real interest rates take into account: the effective rate for mortgage loans calculated by the Federal Housing Finance Board, the Consumer Price Index and the yield of 30-year Treasury Inflation Protected Securities (TIPS). In the graph, the blue line shows the data from the index and the red line shows the estimation.
The average real loan payment between 1975 and 2010 was 15.5%. This figure means that a median-income family was able to buy a median-price house making a 20% down payment and dedicating 15.5% of its income during 30 years to pay back the mortgage loan. The result seems consistent with the average debt service to income ratio (9.6%) between 1980 and 2010 published by the Federal Reserve. The real loan payment to income ratio has to be hihger than the average debt service because of the stream of payments of Fixed and Adjustable Rate Mortgages tilt payments to the early years,
The index was below the average until 1980 because of the low real interest rates. Later on, it reached its peak in 1982 (18.9%) due to the high real interest rates (as a result of the change in the monetary policy) and kept around that level until 1985. In 1986, it declined and remained around the average with low volatility (14%-17%) until 2007. The index fell sharply between 2008 and 2010 to 11% due to the combination of falling prices and very low real interest rates.
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