affordability index - Investment & Finance Definition
An index that measures how affordable housing is. Compiled by the National Association of Realtors, it measures whether a family earning the median family income, as reported by the U.S. Bureau of the Census, could qualify for a mortgage loan on an existing single- family home priced at the national median. To make the calculation, the prevailing mortgage interest rate on loans closed on existing homes from the Federal Housing Finance Board and HSH Associates is used.
An index value of 100 means that the average family has exactly enough income to qualify for a mortgage. An index value over 100 means that the family has more than enough income, while a value below 100 means that a family doesn’t have enough income to qualify for a mortgage loan. The calculation assumes a 20 percent down payment and that the loan doesn’t exceed 25 percent of the median family income. The index is calculated for fixed mortgages, adjustable-rate mortgages, and composite mortgages.