Housing affordability is one of the 2nd tier indicators I use for identifying major trend reversals in U.S. housing markets.
Although the public at large mistakenly believes that falling affordability is bad for future home price appreciation – and that rising affordability is good – more often than not, the opposite is true.
History shows that that housing affordability tends to be inversely correlated with home price movement. Housing prices tend to rise when affordability falls – and fall when it rises.
What’s the Current Trend?
To track housing affordability, the National Association of Realtors (NAR) publishes a monthly index.
As shown in the above chart, housing affordability was 11.4% lower in October 2021 as compared to 12 months prior.
While this is not a stand-alone market timing indicator, this is a favorable reading for home price appreciation.
March 19, 2022 Seminar