NAR Housing Affordability Index Useless

NAR Housing Affordability Index Useless
REALTOR Group's Housing Affordability Index Says Housing Has Never Been Unaffordable

According to this Seeking Alpha article, What's Wrong with the NAR Affordability Index?, the National Association of REALTORS (NAR) Housing Affordability Index (HAI) is utterly useless. The article states "housing never dipped into the level of unaffordable over the entire giant housing boom. This is mind bogglingly astonishing. If the affordability index failed to show housing was unaffordable during 2005-06, when would it ever show that?" In short, according to the NAR Housing Affordability Index (since 1989 when the HAI was created) housing has never been "unaffordable" (see graph below). This is absolutely absurd. How can prices fall so much from 2005 levels and those 2005 levels not be seen as unaffordable? It makes no sense and neither does the NAR HAI - it is absolutely useless.



As the graph indicates, a NAR HAI reading of under 100 means homes are relatively unaffordable. As you can see, the NAR HAI never goes below 100 so it means that NAR wants people to believe that homes have always been affordable. Therefore, when you hear NAR say "homes are affordable and interest rates are low, etc." please dismiss it as fools gold. It is a worthless statement. Unfortunately, the latest wave of buyers that purchased homes, particularly the first time tax credit buyers, fell victim to this nonsense and, as a result, many of them will be the next round of short sales and foreclosures.

If you are a home buyer or real estate investor in Middle Tennessee who is interested in purchasing a Fannie Mae foreclosure, a Freddie Mac foreclosure, bank foreclosure or REO, a short sale, home, investmenr ptoperty, condo, or other distressed real estate in order to get a great home or investment property at an attractive price without dealing with the difficult REO/foreclosure listing agents and you want aggressive and professional buyer representation, please contact me, or visit my website Search the Nashville Tennessee MLS and Middle Tennessee MLS - Find Nashville TN and Middle TN Short Sales, Pre-foreclosures, Foreclosures & REO's so that you can purchase foreclosed homes, short sale homes and other distressed real estate and properties in Nashville TN and Middle TN. I help home buyers in the Nashville Tennessee and Middle Tennessee Area (Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN, Belle Meade TN, Nolensville TN, Springfield TN, Gallatin TN and Mt. Juliet TN).

National Association of REALTORS: Existing-Home Sales Decline in August 2009

According to this National Association of REALTORS (NAR) news release, Existing-Home Sales Ease Following Four Monthly Gains, sales of existing homes (includes single-family homes, townhomes, condominiums and co-ops) declined by 2.7% to a seasonally adjusted annual rate of 5.10 million units in August 2009 from a pace of 5.24 million in July 2009. According to NAR, this is 3.4% above the 4.93 million-unit level in August 2008. Over the previous four month span from April 2009 through July 2009, sales had risen a total of 15.2%.

The news release states that according to Lawrence Yun, NAR Chief Economist, the first time home buyer tax credit is working. The release quotes Yun as saying "Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus. The first-time buyer tax credit is having the intended impact of bringing buyers into the market, allowing them to take advantage of very favorable affordability conditions. Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process, but the decline demonstrates we can’t take a housing rebound for granted."

The news release goes on to state that a NAR practitioner survey shows that for August 2009, first-time buyers accounted for 30% of home sales and that distressed homes accounted for 31% of home sales. Both of these figures were unchanged from July 2009.

The release goes on to quote Yun as saying "The recent trend shows broad improvement in most of the country, but with an expected rise in foreclosures over the next 12 months we need to maintain a healthy level of ready buyers to absorb the inventory. An extension of the tax credit is critical to preserve incentives for financially qualified buyers to enter the market. Now that the market is showing some momentum, we have an opportunity to achieve a more rapid and broader stabilization in home prices. Extending and expanding the tax credit also would help to keep other families from becoming upside down in their mortgages or risk foreclosure. When home prices show sustained gains, credit will become more widely available to other sectors because Wall Street will be able to price risks confidently. Stable home values will also allow more families to purchase consumer products and provide a strong boost for the broader economy."

According to the news release, in the Southern US, existing-home sales were down 3.1% to an annual pace of 1.89 million in August, but are 1.6% above August 2008. The median price in the South was $157,400, which is 11.0% lower than the same period in 2008.

While this seems fine and dandy, I have a problems with the "spin" on these statistics.

• Number of Home Sales - Other than for REALTORS and other folks who generate income when homes sell, and as a result, need to turn units, this figure is just not that important unless it reaches extreme levels as it says little about the overall health of the housing market.  For example, if homes were worth $1 there would be a lot of sales, but the market would be devastated.
• Home Prices - The sale prices of homes declined by 10%+ in every region of the US.  This is further evidence that the market has not hit bottom yet.
• Tax Credit - I find Yun's comments including "An extension of the tax credit is critical to preserve incentives for financially qualified buyers to enter the market." to be laughable.  First, qualified buyers do not need a government subsidy to "enter the market" buy a home. What they need are AFFORDABLE HOMES, which the market is giving us as only a free market can!  We do not need an artificial government subsidy that will temporarily inflate home prices only to see those prices fall when the subsidy is discontinued. Yun says he want to have home prices "show sustained gains" so that "credit will become more widely available." Given that this whole financial mess was caused by credit being too widely available it is utterly foolish to try to expand credit further.  All we need to save the economy is to have homes reach prices that are sustainable based on people's incomes, not debt.