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Low Mortgage Rates Make 2012 Record Year for Home Affordability

2012 will go down as the year that homes were the most affordable ever according to the National Association of Realtors (NAR) Home Affordability Index. For those who can actually get a mortgage loan, record low mortgage rates and declines in home prices over the past several years have made homes more affordable than ever.

The NAR's National Housing Affordability Index was at 198.2 in November 2012 and the NAR predicts the index average for the 2012 year will be at 194 - a record high. The index is based on the relationship between median home price, median family income, and average mortgage interest rates. The higher the index number, the greater the household purchasing power for consumers.

Unfortunately, very tight lending restrictions by lenders is preventing many consumers from getting a loan and is hampering the housing recovery. For consumers who can get a mortgage loan, 30 year mortgage rates today can be found as low as 2.875 percent with points. Current mortgage rates on 15 year conforming loans can be found as low as 2.25 percent with points.

The NAR chief economist, Lawrence Yun said:
Although 2012 was highest on record, the excessively tight underwriting precluded many would-be home buyers from locking-in generational low interest rates. Rising home prices and a gradual uptrend in mortgage interest rates will offset improvements in family income, but 2013 likely will be the third best on record in terms of household buying power. A window of opportunity remains open for buyers who can qualify for a mortgage.

Today's mortgage rates, even at record lows, will move even lower in the beginning of 2013 but will probably head higher later in the year. Higher home prices expected in 2013 will cause the home affordability index to decline, meaning that homes are expected to be less affordable in 2013 then they were in 2012. The NAR projects the housing affordability index to average 160 during 2013.

If you're in a position to buy a home and have been waiting on the sidelines for home prices to drop further or mortgage rates to drop lower, you should take the leap and buy a home. Home prices have been increasing for the past 15 months are expected to move higher.

If you have been thinking about refinancing your current mortgage loan, you should do it now because refinance rates are expected to increase in the second half of 2013. This is true for both fixed mortgage rates and adjustable mortgage rates on both conforming and jumbo mortgage loans.
Author: Brian McKay
January 13th, 2013