This week the Minneapolis Area Association of REALTORS released its latest Housing Affordability Index (HAI) figure for the Minneapolis/St. Paul Metro Area showing that home affordability has risen dramatically from its lows.
At its low in July 2006, the index was at 125. For December 2006 this number had risen all the way to 140. An HAI of 140 means the median family income is 140% of the necessary income to qualify for the median priced home using a 20% downpayment, 30-year fixed rate mortgage.
Since MAAR began tracking housing affordability in 2003, the record high HAI was 156 set in April 2004. While we’re still nearly 20% down from peak affordability seen in 2004, we’re also 12% more affordable than we were at the recent local market lows in July 2006.
In December 2006 housing supply remained quite high, at a total of 7 months supply, up nearly 48% from December 2005. While this inventory is still at record highs, New Listings in the last week in December 2006 were only 2% ahead of the same week in 2005, and Pending Sales were only 1% behind the year-ago number as well. These figures show that the number of new sellers and the number of new buyers are regaining balance, which may lead to a slightly tightening in the housing supply for 2007 if the trend continues.
While we’re not expecting any dramatic or immediate changes to the Twin Cities housing market in 2007, the consensus from many active agents I’ve spoken to is that the tone of the market has been improving in recent months and there’s great optimism that the very worst of this market correction may be behind us.