National Housing Affordability
The notion of a housing affordability index is very helpful in trying to understand the dynamics of local housing markets. The index is usually based on median family income in that area, median house price, and current mortgage interest rate. The actual calculation and form of the index may differ between offices that calculate it. One that seems pretty usable, and with a long comparative history, is called the NAHB (National Association of Home Builders)/Wells Fargo Housing Opportunity Index.
The chart below is prepared from NAHB/Wells Fargo data and shows the relationship between median house price, median family income, and the affordability index for selected U.S. cities. Here is the data link: http://www.nahb.org/page.aspx/category/sectionID=135
An index reading of 50 would mean that a family with median income for the area could purchase any home on the market up to the median price, i.e. 50% of the homes on the market. In 4Q2008, a family in Indianapolis with median income could afford 93% of the homes on the market there; a family in San Francisco with their much higher median income could still afford only 21% of the homes in their market.
