July 06, 2025

The Home Affordability Index is making waves in the news. The headlines reflect a mix of cautious optimism and deep concern. Some have a bearish or negative slant as reflected in a recent headline. "Affordability Crisis Worsens as Home Prices Hit 'Shocking' New High",. Proponents of this viewpoint provide additional data in support of this interpretation. One piece of information being that the median priced home consumes more than 28% of the average wage earner’s income. Another being that home prices have risen 60% since 2019. As a result of these developments , the National Association of Realtors Index suggests that a typical family no longer earns enough to afford a median-priced home. The data shows that it is harder for potential buyers to become homeowners. This is the essence behind the view that there is an affordability crisis. Existing homeowners may disagree with this; they are quite happy to note that their net worth has significantly increased as a result of the home price increase which have risen to five times the median household income. They point out that many of the people who complain about home affordability willingly pay $7 and more for lattes. Why not save for the downpayment? Existing homeowners and potential homeowners have a distinct perspective regarding the implications of the changes in the Home Affordability Index. For the new potential homeowners, all else the same, the lower the Home Affordability Index the easier it is to enter the market and the higher the home prices are, the lower their affordability. We can also surmise that potential homeowners hope that once they buy their home, they hope that the home will appreciate, even though the appreciation results in a decline in the Home Affordability Index. As with all investors , the potential new homeowners hope to acquire an undervalued asset and hope that such an asset will increase in value after its purchase. That is the apparent conflict between the existing homeowners and the potential new

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