income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single- family home. An increase in the HAI, then, shows that this family is more able to afford the median priced home. An index number of 247.1 means that a family earning the median family income has nearly 247% of the income necessary to purchase the median priced home. This opens home ownership to many households who could not afford to purchase if interest rates were higher or incomes lower. Unfortunately, this is tempered by the assumption in the formula that the buyer has the necessary 20% down payment. On the $230,000 median priced home in the Midwest this would mean the potential buyer would need almost $46,000 saved for a down payment. This is a big hurdle, along with the outstanding credit being required by lenders. This explains why affordability is favorable for a high demand (people who want to buy) environment, and yet effective demand (people who CAN buy) is somewhat lower. Wisconsin and the Central Region Wisconsin and the Central Region has experienced much of the same price and sales changes as the Midwest in general. The 3-year trend in Prices and Quantity Sold are both UP. The high rate of Demand is the one factor that explains both variables increasing.
The three-year supply of homes has steadily been dropping, with the last 12 months being even more dramatic. As a point of reference, 10 years ago the Months’ Supply was over 10 months. No question that the reduced supply has contributed to the rise in prices. However, if the reduced supply was the dominant factor, the actual quantity of homes sold would have declined.
Figure 3: Supply DOWN
Affordability Another very positive development is affordability. Three variables determine the affordability index: home prices, interest rates, and median income. Rising prices are a negative, low interest rates are a positive, and rising incomes are also a positive influence. The combination has led to some of the best affordability numbers in history. Table 4 illustrates the Housing Affordability Index (HAI) nationally and the Midwest specifically. The favorable Affordability numbers are a big contributor to the high demand for housing.
Table 4: Affordability Index Affordability Ind x
Table 5: Wisconsin Trends Wiscon in Tren s
Median Priced Existing Single- Family Home 261,600 274,600 300,200
Region
Median Prices
Existing Home Sales
Monthly Payment Median
2018 2019 2020
184,000 197,500 220,000
82,626 82,698 88,898
Mortgage P & I
as a % Family Qualifying
Rate* Payment of Income Income Income** Composite
Direction Central WI
UP
UP
2018 2019 2020
146.3 159.5 170.8
4.72 4.04 3.17
1088 1054 1035
17.1 76,401 52,224 15.7 80,704 50,592 14.6 84,843 49,680
Prices
Existing Home Sales
2018 2019 2020
140,500 150,000 165,000
5,534 5388 5777
Midwest
Direction
UP
UP
247.1
230,000 2.73% $1004 10.1% $88,954 $36,000
Local Area The following data on our four local markets was developed by the Central Wisconsin Board of Realtors: Marshfield, Stevens Point, Wausau, and Wisconsin Rapids. While the National/Region/State/Central area are very uniform, the local cities have a few differences. Both prices and quantities are up leading to the conclusion that Increasing Demand is the primary reason. Again, this can be illustrated by Figure 2. Looking at Table 6 shows the same UP trends for all four markets for the time period 2017-2020, but if we look at the most current year-to-date data, the picture changes quite dramatically.
The key number here is the last column, the composite index number. To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median- priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. For example, a composite of 120.0 means a family earning the median family income has 120% of the
Central Wisconsin Report - Fall 2020
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