Low mortgage rates help keep housing affordability constant

Residential housing affordability has been relatively constant over the last several quarters, coming in at 63.1% in the first quarter vs. 63.3% in the prior two periods, according to the National Association of Home Builders/Wells Fargo Housing Opportunity index. The index level is roughly in line with recent historical figures, with the 66% recorded in 2020's first quarter an aberration. The index measures the percentage of families earning the median income who can afford homes based on recent sales prices.

The stable affordability levels come as real estate prices have posted large year-over-year gains. Over the last three quarters, the increases have ranged from 12% to 15%, including 14% in the first quarter.

However, mortgage rates have fallen since the start of 2019, helping affordability. After the 30-year fixed rate ended 2018 at about 4%, it dropped over the next several quarters to 2.85% by the end of 2020, although it ticked up to 2.96% in the first quarter. But affordability may have improved lately based on lower rates. After mortgage rates started April at 3.18%, it fell to 2.88% as of mid-July, according to the Federal Home Loan Mortgage Corp.