Vermont Housing affordability improved in 2010 for the fourth consecutive year, according to The Vermont Economy Newsletter’s annual housing affordability analysis.
‘The share of median family income needed to finance the payments on a median priced home in Vermont fell to 14.8% in 2010, the lowest percent of income needed to service a mortgage since 2002,’ said Art Woolf, author of the study. ‘In the 24 years we have been tracking housing affordability, there have been only four years when housing has been more affordable than in 2010.’
Housing affordability is based on the interaction of mortgage rates, housing prices, and income. In 2010, Woolf said, ‘the primary driver of the improvement in affordability was the decline in mortgage rates. A conventional, fixed rate mortgage averaged 4.69% in 2010, down from the already low 5.04% in 2009. Mortgage rates in 2010 were at their lowest level in more than fifty years.’
‘Our projection is that incomes also grew, albeit slightly, last year,’ he continued. ‘Both of those factors helped improve affordability. Housing prices rose slightly, which acted to reduce affordability.’
Woolf noted the changing pattern of housing affordability in Vermont: ‘In the late 1990s, a median income family spent 14% of its income to service the mortgage on a median priced home. Affordability worsened in the early part of this decade, and by 2006 it took 19% of a median family’s income to pay for the mortgage on a median priced home. Since then the cost has dropped to less than 15% of median income.’
‘Affordability in 2011 will get slightly worse in 2011’ predicted Woolf. ‘Mortgage rates are likely to rise this year as the economic recovery takes hold and the Federal Reserve begins to relax its low-interest rate policy. We expect income and housing prices to grow, but only slowly. The impact of higher mortgage rates is likely to dominate the affordability equation this year.’
The housing price used in this analysis is the median price of all 4,000 residential houses sold in Vermont in 2010, based on data obtained from the Vermont Tax Department. It does not include vacation homes. Half of the homes sold cost more than the median and half cost less. Mortgage rates used in the analysis are 30 year fixed rate mortgages with a 20% down payment. Income is the median income of married taxpayers filing joint returns.
Source: The Vermont Economy Newsletter. March 14, 2011
-30-