Boston Real Estate for Sale

Fannie Mae’s board of economists have come out with a new prediction on the direction of housing prices and interest rates, over the coming months.

Hey, their predictions are as good as anyone else’s, right

What do they foresee?

Well, first, they say that, over the past 12 months, housing affordability has improved.

From Fannie Mae:

“During this period, the effective mortgage rate increased by 96 basis points, median family income increased by 3.7 percent, and median existing home prices increased by a very modest 1.7 percent.

So, over the last year, increases in median family income were more than sufficient to cover increases in existing home prices.”

This improvement should continue, over the coming months.

There will be “modest increases in both mortgage interest rates and home prices for the rest of this year.”

The good news, for consumers, is that they should “expect income to continue to increase as well, suggesting that we could see a modest improvement in affordability over the remainder of this year.”

Sounds good.

By the way, I have a question about the National Association of Realtor’s definition of “affordability”. Their index measures whether a family earning the median income can afford to buy a median priced single-family home, at the prevailing mortgage loan interest rate.

The calculation assumes “an 80-percent loan-to-value ratio and a qualifying housing-to-income ratio of 25%.”

This is of limited value, since more people are taking out 80% first loans, and 10-15% second loans. Plus, I’m not sure what NAR means by “housing-to-income ratio”. If they mean that you should be able to buy a home 4x your annual salary, that’s useless – it doesn’t take into account the effect of lower interest rates.

If they mean that your monthly housing expense should be 25% of your monthly income, then that makes more sense, but it’s still lower than what banks would loan against – they’d allow a 28-33% ratio.

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Updated: January 2018

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