Interest Rates Keep Texas Homes Affordable

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Despite its $126,100 sticker, the median-priced Texas home is still affordable by 60% of the state’s households. Texans can thank lower interest rates for that.
Interest Rates Keep Texas Homes Affordable

RISMEDIA, Aug. 19 — Despite its $126,100 sticker, the median-priced Texas home is still affordable by 60% of the state’s households. Texans can thank lower interest rates for that, says an expert with the Real Estate Center at Texas A&M University.

“Most homes sold in Texas in the second quarter were affordable to the majority of Texas households,” says Research Economist Jack C. Harris. “Although unemployment jumped from 5.6 to 6.8% in the past year, the housing market continues to have historically high sales volume thanks to good affordability created by lower interest rates.”

Statewide the THAI was 1.25 for second quarter 2002, meaning that the median household income in Texas was 25% more than the minimum income needed to buy a median-priced home. Prices are based on current sales closed through the state’s Multiple Listing Services. Financing is assumed at the currently available interest rate on 30-year mortgages covering 80% of the home’s value.

Harris has revised the index for previous quarters to take into account Texas’ higher homeowners insurance premiums and property taxes. The THAI was downwardly revised for first quarter 2002 to 1.27 and to 1.24 in second quarter 2001.

Homes remain within reach for most first-time homebuyers. The First-time Homebuyer’s Affordability Index remained at 1.01 in second quarter 2002, same as one year ago. The index indicates that the median income of a renting household in Texas is 1% higher than needed to buy the median-priced starter home, based on financing with a loan covering 95% of value.

Median home prices rose 3.2% in the past year. However, mortgage interest rates fell from 7.06% to 6.8%, wiping out much of the effect of the higher home prices.

The economy had some impact on second quarter sales, as the number of homes sold through Texas MLSs slipped by 3.2% compared with last year’s record-breaking sales.

The THAI tracks quarterly changes in affordability for Texas markets and for the state overall. It should not be used to compare one area to another because of differences in demographics.

For more information on the THAI, see “Tracking Affordability” at http://recenter.tamu.edu.

The Real Estate Center has been providing solutions through research for more than 30 years. Funded primarily by Texas real estate licensee fees, the Center was created by the state legislature to meet the needs of many audiences, including the real estate industry, instructors, researchers and the general public.

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