Tuesday, November 17, 2009

The rational behind my affordability ratios

With home prices falling and affordability increasing it probably is a good time to remind people how I calculate the affordability ratio.

I use median family income numbers from The U.S. Department of Housing & Urban Development (HUD). HUD doesn't list income levels for every metro area. According to HUD the income level for Portland is $70,000. When you compare the current median home price to the current median income you get a ratio of 3.5.

HUD doesn't publish data specifically for Vancouver so I use the Portland income level. Some will say wages are lower in Vancouver and I have no doubt there is some data to back up that argument but wages vary significantly on this side of the Columbia too.

Eugene's median income is listed as $57,200 and their ratio is 3.4.

HUD doesn't release new data at the beginning of the year so I've been using the 2008 HUD data for most of this year. I'll start using the 2009 data in November.

Some readers might say this ratio is overly simplistic and doesn't take interest rates or taxes into consideration. They might even have the courage to mention the NAR affordability index which reported affordability every month of the housing boom. I agree, this is a simple ratio and that is why it is more accurate than the NAR numbers.