FHFA Details New Measure for Homebuyer Affordability

In September, the Federal Housing Finance Agency (FHFA) unveiled a new measure for homebuyer affordability called the Housing Affordability Estimate (HAE). The HAE provides quarterly data on the share of recently-sold housing that was affordable to potential homebuyers from 1991 through the second quarter of this year. Along with providing downloadable data for 50 large metro areas and the nation as a whole, the FHFA also released a report describing the components of the HAE and its advantages over other affordability measures, which include: reporting the share of housing affordable to buyers at three levels of income (100 percent, 80 percent, and 50 percent of area median income); using the FHA’s 3.5 percent standard to calculate assets needed for a down payment (rather than the more traditional 20 percent); incorporating non-housing expenses in their determination of income needed; and forecasting future income and housing costs to predict affordability up to three years following purchase. The report also describes trends in the HAE over time, finding that affordability improved between 2004 and 2011 as house prices fell nationally and in most metro areas. These gains were not evenly distributed by income, however, with the two higher income groups seeing greater increases in the share of homes affordable to them relative to the lowest income group. Since 2011, affordability has again come down for all three income levels, with the wide gap between the bottom and top remaining intact. See Enterprise’s blog post for more details on this measure and its findings.