What does the ‘Housing Affordability Index’ mean?

The term “Housing Affordability Index” (HAI) is a common term you’ll see in write-ups discussing the desirability of living in a certain geographical area.

It is an index number that gives consumers an idea of their home-purchasing power in that area. The number indicates the ease of qualifying to buy a median-priced home considering typical incomes and market conditions there.

The National Association of Realtors® (NAR) uses a formula to yield a single number to express HAI in an area. It is based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index number, the greater the household purchasing power. Recordkeeping began in 1970.

NAR defines an index of 100 as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent down payment and 25 percent of gross income devoted to mortgage principal-and-interest payments. (For buyers making smaller down payments, the affordability levels are relatively lower.)

In other words, if an area has an HAI of 100, a median-income household can typically qualify to buy a median priced existing single-family home there. It is considered to be an area where housing is reasonably affordable.

HAIs that are over 100 indicate more and more housing affordability – that is, median-income households can qualify for single-family homes above the median price.

According to NAR, the U.S. experienced historic highs in housing affordability over the past several years, even with some dips being experienced most recently.

NAR’s national Housing Affordability Index stood at 165.4 in November 2013. Historical data and Individual numbers for major metropolitan areas can be found on NAR’s website..