CHICAGO HOME AFFORDABILITY INDEX SHOWS MEDIAN-PRICED HOME HERE STILL ELUDES MANY!
CHICAGO AFFORDABILITY INCREASES, BUT MANY CANNOT AFFORD MEDIAN-PRICED HOME IN CITY, SUBURBS!
Housing market analysts calculate housing affordability in a given area by comparing the median home price (50% of the homes priced higher, 50% lower than this number), to the purchasing power of the median-income potential homeowner in the area.
When these median-income buyers cannot qualify for a mortgage on a median-priced home in an area, the local housing market is out of balance. On the other hand, when that middle-income earner can qualify, market balance exists.
Here in Chicago, according Economy.com Economist Celia Chen, home affordability is improving, but it is still short of the theoretical level of market balance. In most neighborhoods and in many suburbs here, prices have fallen, attracting more potential buyers, but stricter standards of mortgage lenders shrink the pool of those who qualify to buy.
A couple of years ago, during the middle of the housing boom, most with average credit or better could qualify for a low-down payment loan in Chicago, at a competitive interest rate between 5 and 5.5 percent. Today, those with credit scores of less than 680 need a higher minimum down payment - often at least 10%. Many lenders are also requiring certain buyers also have an additional "emergency reserve fund" in their savings account, in addition to their down payment.
As of the Fourth Quarter, 2007, the latest quarter for which statistics are available, the Economy.com Housing Affordability Index for Chicago was 106.69. During the previous quarter, the Chicago index was 97.44.
A local index of 100 or above suggests the median income earner with a minimum down payment of 20% could afford the median-priced home locally. In Chicago, however, most city neighborhoods and surrounding suburbs have higher levels of median home prices, and the long-term average here has hovered around 120 since 1979.
In today's Chicago housing market, however, even lower housing prices may be out of reach for many home buyers, unless they have very strong credit, and good down payments.
See Marilyn Kennedy Melia's article in today's Chicago Tribune for more details.
DEAN MOSS & DEAN'S TEAM CHICAGO
