After several years of seeing families priced out of the housing market by rapidly increasing prices, that trend began to reverse itself in 2007, according to the National Association of Realtors' (NAR) monthly housing affordability index released this morning.

"Affordability has been improving steadily since July," says Walter Molony, spokesman for NAR. "Affordability is a combination of price, income, and interest rate. All three are moving in favorable directions."

The NAR's housing affordability index is based on the number 100, which is the point at which a median-income family has the amount of income they need to purchase a median-priced house, Molony says. That number assumes they have a 20 percent down payment and the house payment takes no more than 25 percent of their gross income for principal and interest. The higher the index, the more affordable the housing is for families with median income. If the index were 110, it means that a family with the median income could afford a house that costs 10 percent more than a median-priced house. Buyers with a small down payment, such as the 3 percent minimum down payment required for an FHA loan, could afford a house at about 80 percent of the median-priced house.

Between December 2006 and December 2007, the housing affordability index increased from 109 to 122, the highest it's been since February 2005. Every region in the country experienced a similar, double-digit increase, led by the Midwest, where the index surged from 152 to 163.8. In the Northeast, it rose from 95.4 to 109.3; Southern buyers saw the index rise from 120.9 to 132.8. Even in Western markets, where affordability was measured in the teens during the height of the real estate boom, the index increased from 71 to 83.4.

Molony cautions, however, that the most current numbers reflect a "big slowdown on high-price transactions, so we're not quite getting apples to apples with year-ago price comparisons. Our sense is prices are flattening out."

NAR has been collecting data on housing affordability since 1970 and publishing it monthly since 1982. Visit$FILE/REL0712A.pdf to view this month's report.

The most meaningful number in the report is the median mortgage payment as percentage of income, which shows how much of a person's income will be needed to make a house payment. Historically, the highest affordability was in 1972, Molony says, when that number was at 16.2 percent of monthly income. The lowest was in 1981, when a house payment consumed 36.3 percent of monthly income, due to record high interest rates. Currently, the percentage is 20.5.

Still Unaffordable for Many Workers
The report's measured optimism is tempered, however, by the release this morning of the Center for Housing Policy's annual study on housing affordability, "Paycheck to Paycheck: Wages and the Cost of Housing in America." That report showed that despite the decline in housing prices, homeownership remains out of reach for the majority of workers nationwide. The study compares housing costs in 201 metropolitan areas with the wages earned by workers in 60 occupations.

This year's report, which can be viewed at, looked at the five top growth occupations: registered nurses, retail salespeople, customer service representatives, food service workers, and office clerks. Based on median annual income, homeownership was unaffordable for all five groups in most of the markets studied. Registered nurses, the highest-paid occupation of the five studied, could afford to buy a median-priced house in 93 of the 201 markets. Customer service reps, the second-highest paid group of the five, were priced out of 185 markets.

"Despite the downturn in the market, it hasn't been enough to close the affordability gap for working families in the $20,000 to $50,000 income range," says Rebecca Cohen, a research associate at the Center for Housing Policy, the research arm of the National Housing Conference, a national advocacy organization for affordable housing. "The message is that increasing the supply of affordable housing is paramount. We need these people in our communities and they need a place to live."

The report confirmed what housing advocates have addressed for some time, says Sean Burton, COO and managing director of Los Angeles-based CityView, a real estate fund that invests in infill, for-sale workforce housing.

"The new jobs are primarily service jobs," he says. "Home prices have risen much, much faster than wages. Prices have eased up a little but not nearly enough to make up for what we've seen in the last four years."

New Resource for Advocates, Consumers
Coupled with the release of this year's study is the roll-out of, a new Web site with information on affordable housing and a tool kit of strategies available to local governments and organizations to address the affordable housing challenge.

"We talk about bringing together a diverse coalition of interests," Cohen says. "Who knows better what the obstacles are to affordable housing than the builder community? The site looks at all kinds of incentives and subsidies and mechanisms; encouragement to bring builders into the conversation, to collaborate to come up with solutions that work locally for a community."

Burton says he was especially excited about the site because it's available to anyone interested in affordable housing, including prospective home buyers.

"To make information more accessible to potential buyers is important," he says. "The problem with a lot of subprime loans was that people didn't know they were being taken advantage of. With financial literacy, they can avoid some of those problems. This is a fresh solution."