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HOUSING AFFORDABILITY INDEXES RISE AS INTEREST RATES DROP

 HOUSING AFFORDABILITY INDEXES RISE AS INTEREST RATES DROP
 WASHINGTON, May 13 /PRNewswire/ -- Spurred on by lower interest rates, housing affordability conditions during the last six months for both first-time and trade-up buyers were more favorable than they've been since the mid-1970s, according to the National Association of Realtors' composite and first-time home buyer Housing Affordability Indexes released today.
 NAR President Dorcas T. Helfant commented: "With interest rates at a level not seen in almost two decades, it's no wonder we are seeing increased home sales activity. Despite the affordable financing available, however, first-time buyers still need incentives to overcome down payment barriers. In fact, our figures show that the disparity between trade-up and first-time buyers is getting worse, not better."
 NAR's composite Housing Affordability Index, which measures affordability for all buyers of existing homes, measured 122.4 for the first quarter of 1992 -- 34.8 percentage points higher than the 87.6 index for first-time buyers. The gap between the two indexes was 31.7 percentage points during the first quarter of 1991.
 The composite and first-time home buyer affordability indexes rose during the first quarter of 1992 from the first quarter of 1991 because lower interest rates and improving income offset higher home prices. The average effective interest rate for the first quarter was 8.36 percent. Interest rates have not been lower since dipping to 8.06 percent in the third quarter of 1973.
 NAR's composite Housing Affordability Index shows the ability of a family earning the median income to purchase a median-priced resale home. For the first quarter of 1992, the composite index rose more than 10 points to 122.4, compared with 111.9 a year ago. Similarly, the first-time buyer index rose more than seven points to 87.6, compared with 80.2 a year ago. While affordability gains are being made by the first-time buyer, it is at a slower rate than the typical buyer.
 When NAR's Housing Affordability Index measures 100, the median family income equals exactly the amount needed to purchase a median- priced home, using conventional financing and a 20 percent down payment. Because the national median income during the first quarter exceeded the qualifying income, a family earning the median income could purchase a home priced at $126,200 -- $23,100 higher than the median price for the first quarter.
 Since the median is the midpoint, the composite index shows that half the families in the nation earned more than $36,788 per year and half earned less. Similarly, it shows that those families had 122.4 percent of the income needed to qualify for the purchase of a home with a median price of $103,100.
 During the last six months, the composite index has been at its highest level since 1976, when it averaged 125.8 for the year. By comparison, NAR's first-time home buyer Housing Affordability Index rose to 87.6, a level not exceeded since 1977.
 The first-time home buyer index shows the ability of renters who are prime potential first-time buyers to qualify for a mortgage on a starter home. When the index equals 100, the typical first-time buyer can afford the typical starter home under existing financial conditions. The first-time buyer median income represents the typical income of a renter family with wage earners aged between 25 and 44 years.
 During the first quarter of 1992, the median income of prime first-time home buyers was $25,752. Yet the qualifying income needed for conventional financing covering 90 percent of a $87,600 median starter home price was $29,394 -- a difference of $3,642 per year. Based on the first quarter's entry-level affordability conditions, a typical first-time buyer would qualify to buy a home priced at about $76,700. This is $10,900 higher than a year ago.
 The change in first-time buyer purchasing power over the last year resulted from a modest increase in the starter-home price, a slight increase in family income and a drop in interest rates. Factoring in closing costs, interest rates for first-time buyers declined 1.4 percentage points to 8.61 percent from one year ago when the rate was 10.01 percent.
 NAR Chief Economist John A. Tuccillo said interest rates have primed the market for movement, but first-time buyers remain at a disadvantage. "While an existing owner is fortunate to utilize accumulated equity, freshmen home buyers are forced to muster up enough cash for down payment and closing costs. Legislation allowing individuals to apply tax advantages toward home purchases could help lessen the disparity," he said.
 Under affordability conditions for all buyers during the first quarter of 1992, a family earning $20,000 per year would have sufficient income to qualify for a $68,800 home with a $55,000 loan. A family earning $30,000 would qualify for a $103,100 home using a $82,500 loan. For a family earning $40,000, qualifying for a loan of $110,000 would enable them to purchase a $137,500 home. Finally, a family earning $50,000 annually would be able to buy a $171,900 home after qualifying for a $137,500 loan.
 The National Association of Realtors, "The Voice for Real Estate," is the nations's largest trade association, representing nearly 750,000 members involved in all aspects of the real estate industry.
 -0- 5/13/92
 /CONTACT: Lois Clinton, 202-383-1016, Walter Molony, 202-383-1177, or Scott Sherwood, 202-383-7560, all of the National Association of Realtors/ CO: National Association of Realtors ST: District of Columbia IN: SU: ECO


IH-DC -- DC005 -- 9483 05/13/92 08:45 EDT
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Date:May 13, 1992
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