Thursday, July 9, 2009

Manhattan Housing Affordability Index

The National Association of Realtors publishes a monthly housing affordability index to give a sense of national housing prices vs median income. For example, an index of 150 means the median family income is 150% of the income needed to qualify for the median priced house.

The index was started in 1971 and at that time, it was around 150. In May 2009, it was 171, close to the high of 179 set in April 2009. This means that the median family income in the US is 171% of the amount needed to qualify for a mortgage at the median price. Yeah - sounds good right?!

The index does have flaws.
1. Real estate is local - this means we need a localized index.

2. It tracks median family income. More members of the family may be working now compared to back in the 1970s.

But this index does give a sense on the median house price in the US.

For Manhattan, I'm going to do a quickie calculation. Let's say the median income is $100,000 (the most recent data from Census.gov is $64K back in 2007). The median price is $836K based on the latest 2Q'09 Miller Samuel report. From analysis, qualifying income is about 21 percent of the median home price which means the estimated qualifying income for Manhattan is $175,560. This leads to my estimate of housing affordability index for Manhattan of 56 (100,000/175,560 X 100) . The median income in Manhattan is only 56% of the income required to qualify for the median priced apartment.

Not even close to the national level of 171? Of course not. This is Manhattan.

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