BEND, Ore. (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.
Yet, during the second quarter of 2003 housing was at its second-most affordable level since 1973, according to a report released Friday by the National Association of Realtors (NAR).
The median existing-home price shot up $7,700 to $168,900 between the first and second quarter, while median household incomes held steady at $53,285, increasing by less than 1 percent.
But because lower interest rates allowed homeowners to pay more for their homes without significantly raising their monthly mortgage payments, housing was still very affordable.
In 2002, the median monthly mortgage payment was $805, which accounted for 18.2 percent of median household income. In the second quarter of 2003, the median monthly mortgage payment dropped to $774, only 17.4 percent of household income.
Assuming buyers put 20 percent toward a down payment (and most repeat homebuyers do), the typical household had 143.3 percent of the income needed to purchase a home, according to the NAR's affordability index.
An index of 100 would indicate that median-income buyers have exactly the amount needed to afford a median-priced home. The index was 144.1 during the first quarter of the year. In 1973 it was 147.9.
Of course, this is just the national average. Some markets are more affordable than others.
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The NAR does not release recent data on individual markets, but during the fourth quarter of 2002 when the national index was 140.3, homes in Peoria, Ill. were more than twice as affordable. An index of 290 showed that families in the median had nearly three times the income needed to buy a median-priced home.
Homes in San Diego, meanwhile, were the least affordable of all metro areas, as median-income families had only 69.4 percent of the income needed to buy a median-priced home. The same was true, though to a lesser degree, in New York and San Francisco, where the index was 86.1 and 73.4, respectively.
What rising rates mean for affordability
During the second quarter, the average effective interest rate for existing homes reached a record low 5.58 percent, according to the Federal Housing Finance Board.
During the week ending July 31, however, the 30-year mortgage rate rose for the fourth consecutive week. Rates for loans with an average of 0.5 a point up front were 6.14 percent, according to Freddie Mac. (See "Mortgage rates cruise higher".)
"With a recent rise in interest rates, the housing affordability index can be expected to slide but remain very favorable," said David Lereah, NAR's chief economist.
It's important to note that low interest rates have played a major role in driving up home prices. And this relationship works both ways.
With rates going up, home prices are expected to soften, said Lawrence Yun, NAR senior economist. "Rising interest rates should moderate home price growth," he said.