Personal Finance > Your Home
The American dream stays alive
Real estate prices are rising faster than incomes, but low interest rates keep housing affordable.
February 3, 2003: 6:39 PM EST
By Sarah Max, CNN/Money Staff Writer

New York (CNN/Money) - With housing prices rising as fast as they have, you would think that homeownership would be moving out of reach for many Americans. Think again.

Although real estate prices grew three times faster than household incomes in 2002, housing last year was just as affordable as it was in 2001, and almost 6 percent more affordable than it was in 2000, according to a report released Monday by the National Association of Realtors (NAR).

The median price of an existing single-family home last year was $158,300, up 7.1 percent over 2001. The median family income, meanwhile, was $53,037; just 2 percent higher than it was last year.

But because lower interest rates allowed homeowners to pay more for their homes without significantly raising their monthly mortgage payments, affordability stayed the same. In 2002, the median monthly mortgage payment was $805, which accounts for 18.2 percent of median household income. In 2001, mortgage payments were also 18.2 percent of income. And the year before, mortgage payments represented 19.3 percent of income.

Assuming the typical buyer puts 20 percent toward a downpayment (and most repeat homebuyers do), a family earning $53,037 could afford to pay $217,345 for a home, or 37 percent more than the median home price.

"To put this in perspective, the typical family buys a home costing between 2.5 and 3 times their annual income," said NAR President Cathy Whatley. In 2002, a family could afford a home costing more than 4 times their income.

Homeownership higher than ever

According to Census Bureau data released last week, there are now more homeowners in America than at any time in history. In the fourth quarter of 2002, 68.3 percent of all households owned the roof over their head. A decade ago, just 64 percent of Americans owned their own homes.

This increase in homeownership is in part due to low interest rates and wider availability of credit, which have made it easier than ever for first-time buyers to get into the market.

"Our research shows that 42 percent of homebuyers are first-time homebuyers," said Walter Molony, a spokesperson for NAR.

That said, rising prices may put single-family properties out of reach for would-be buyers in some markets, assuming lenders require them to pay at least 10 percent of the purchase price up front.

According to NAR, a typical first-time buyer is between ages 25 and 44 and earns $36,960. But the median price for a single-family starter home $137,400 during the fourth quarter is too high for this group to qualify for a loan that requires 10 percent down.

As an alternative, rookie homeowners in some markets must pool their resources, buy condominiums or expand their househunting in "undiscovered" neighborhoods where they'll get more for their money.  Top of page

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