Scott Burns: The restoration of middle-class wealth

Things change.

One of the big changes is in housing affordability, a figure that is currently so positive it’s likely to drive home prices upward for the rest of 2013. That price change would do a lot to restore our confidence.

Imagine: no more middle-class depression, less worry about the future.

Late last year, the National Association of Realtors announced that its housing affordability index was about to have its best year ever. That means home ownership is more affordable, for more Americans, than it has been since the association started the index more than two decades ago.

In November, the last month for which a figure is available, the affordability index hit 198.2, down slightly from its record reading of 200.7 in October. The index is constructed by comparing the median family income to the income necessary to qualify for the median-priced existing single-family home. In October, the record month, the median price was $177,000. The home mortgage rate was 3.57 percent. This calculates out to a very low 12.6 percent of the median family income, some $61,752 at that time.

Work the numbers a bit more, and you learn that an income of only $30,768 would qualify you to buy the median-priced existing home. Mortgage interest rates have declined slightly since then, so it’s pretty easy to say that a whole lot of people, more than ever before, can qualify to buy a house.

This is a gigantic change. To explore just how big it is, I asked the researchers at the NAR for their affordability figures as far back as 1989. Those figures show that we simply have never had a time like this. If you want to buy a home and have any faith in your future, this is the time to do it. If you want to buy a second home, this is the time to do it.

You can understand why by looking back to the housing bubble peak in 2006. Back then, the affordability index bottomed at 101.1 in July. That’s when the median home price was $230,900 and mortgage interest rates were 6.82 percent. The result was a mortgage payment that would take 24.7 percent of the median family income ($58,590 at that time) and a qualifying income that was nearly as high, $57,936. Today, home prices are about 20 percent lower, mortgage rates have been cut in half, and the median income (believe it or not) is slightly higher.

This isn’t a regional thing, either. While the western and northeastern states continue to be less affordable than the Midwest or the South, more people who actually work for a living can still afford houses all around the country. In the expensive West, for instance, the median home price is substantially higher ($251,200) than the national median of $180,600 — but it requires only an income of $43,584 to qualify for that home, and the actual median income is $63,527, slightly higher than the national median. (Needless to say, these figures don’t apply to really expensive locations such as San Francisco and San Diego.)

Another way to examine this is to ask how much house could the median family income afford to buy today? Using the home purchase calculator on, I found that today’s median income family could afford to buy a home priced around $250,000. Note that this is a soft figure — the actual amount will depend on real estate taxes and insurance costs in each area, as well as family obligations like car loans, credit cards and other debt. But a family with good credit, limited consumer debt and a good down payment can afford a $250,000 house. That figure, by the way, is very close to the current median price of a new home, according to the Commerce Department.

Is this important? Yes. Here’s why: Being able to afford a $250,000 house shows that we have the mortgage interest rates and the income to drive home prices to their old peak — and beyond. If that happened, we would no longer have millions of homeowners living upside down, owing more on their houses than their market value. Homeowners could sell and move without bringing a check to the closing. The biggest single source of wealth for the vast majority of all Americans would be restored.

Is this a lead pipe cinch? Absolutely not. Lots of things can go wrong, most of them in Washington. But it isn’t a pipe dream, either.