Housing Affordability Continues to Improve in 2008

Vermont housing affordability improved significantly in 2008, the second year of improving affordability. This is the main conclusion of the annual affordability study performed by The Vermont Economy Newsletter. The study was based on an analysis of all the residential housing sales in Vermont from 1987 to 2008.
The share of median family income needed to finance the payments on a median priced home in Vermont fell to 17.2% in 2008, the lowest percent of income needed to service a mortgage since 2004, said Art Woolf, co-author of the study.
Housing prices fell by 1% in 2008, according to Vermont property transfer tax data from the Vermont Department of Taxes, said Dick Heaps, the study s co-author. At the same time, the median family in Vermont earned $68,000, an increase from 2007, and mortgage rates fell from 6.3% in 2007 to 6.0% in 2008. All three of these factors contributed to the improvement in affordability.
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 17% of median income.
2009 will bring even better housing affordability news, predicted Woolf. Mortgage rates are currently 5% and we expect them to remain low for the rest of the year. While incomes will stagnate due to the recession, we expect Vermont housing prices to continue to fall. The combination of these factors will mean housing affordability will show a marked improvement in 2009. Our estimate is that the median family will need to pay only 15.5% of its income to service the mortgage on a median priced house. For those Vermonters with good credit and who have saved for a down payment, 2009 will be a good year to buy a house.
Housing prices used in this analysis include only residential sales and do not include vacation homes. Half of the homes sold cost more than the median and half cost less. Mortgage rates are for a 30 year fixed rate mortgage with a 20% down payment.