Though a final tally for the month of December isn't in, the National Association of Realtors predicts 2012 will soon be dubbed the most affordable year for housing in the history of the firm's real estate records.
Predictions of the landmark low come after the Housing Affordability Index dropped slightly on a month-over-month basis in November. Despite the slight decline of 2.5 index points, the index was stable at 198.2, up 1.5 points from the same month a year ago. The overall affordability stems from a shrunken gap between median home prices and median family incomes, while mortgage rates also provide optimal financial opportunities for buyers.
When looking at the index for 2011, projections for an overall index level of 194 are notably higher than the 186 from last year.
"Although 2012 was highest on record, the excessively tight underwriting precluded many would-be homebuyers from locking-in generational low interest rates," said Lawrence Yun, chief economist of NAR. "Rising home prices and a gradual uptrend in mortgage interest rates will offset improvement in family income, but 2013 likely will be the third bed on record in terms of household buying power."
Index to drop in 2013, economy and housing market to continue improving
While a high index reading means more consumers will be able to make the investment of purchasing a home, growth could slow as economic factors including job opportunities and income evolve.
According to NAR, the index should average around 160 in 2013, while some regions such as the Midwest and the South could post higher affordability as they have proven to have stronger local economies. Areas less affected by the housing market slump have also posted higher home prices, which could leave many unable to afford properties if incomes stay dormant and household expenses increase.
With affordability expected to decrease slightly over the next 12 months, NAR president Gary Thomas stressed the importance of less strict lending standards to promote home sales. He suggested sales could rise as much as 10 to 15 percent in 2013 if regulations lighten and allow those who are qualified to purchase to complete the transaction while mortgage rates help offset strengthening home prices.
While 2012 could set a new record for affordability, consumers are also reportedly doing better in managing their finances which should boost interest in homeownership. According to Standard and Poors'Dow Jones Indices, credit quality improved in 2012.