THE ASSUMPTIONS AND METHODOLOGY USED TO CALCULATE C.A.R.'S TRADITIONAL
HOUSING AFFORDABILITY INDEX (HAI)
Step 1. MEDIAN PRICE: C.A.R.'s housing affordability index is based on the
median price of existing single-family homes sold from C.A.R.'s monthly
existing home sales survey. Starting in 1987, this survey is based on
reports of closed escrow sales from 80 Boards or more of REALTORS® and
multiple listing services around the state. Prior to 1987, the survey was
based on reports from 45 Boards.
Step 2. DOWNPAYMENT: It is assumed that a household can make a 20 percent
downpayment on the median-priced home. Therefore, the loan amount needed to
purchase a home would be 80 percent of the median home sales price.
Step 3. INTEREST RATE: Using the national average effective mortgage
interest rate on all fixed and adjustable rate mortgages. This is
represented by the effective composite rate for previously occupied homes,
which is reported monthly by the Federal Housing Finance Board.
Step 4.The monthly payment for PRINCIPAL, INTEREST, TAXES AND INSURANCE
(PITI) is computed as the sum of three parts:
-Monthly mortgage payment, based on the terms of the mortgage in Steps 2
-Monthly PROPERTY TAXES are assumed to be 1 percent of the median home
sales price divided by 12.
-Monthly INSURANCE PAYMENTS on the house are assumed to be 0.38 percent of
the median home sales price divided by 12.
The results of these three calculations are added together to find the PITI
or total monthly payment for a household that buys the median priced home.
Step 5. It is then assumed that the monthly PITI can be no more than 30
percent of a household's income. Thus, the monthly housing payment is
divided by .3 to come up with the MINIMUM INCOME NEEDED TO QUALIFY FOR A
LOAN on the median-priced home.
Step 6. Starting in 1988, data for the distribution of households by
various income ranges was obtained from Claritas. INCOME DISTRIBUTION
figures were developed based on the projected percent change in the annual
median household income. Prior to 1988, household income utilized in the
housing affordability index was based on projections by C.A.R. using the
1980 census data as a base.
Step 7. The minimum income amount calculated in Step 5 is multiplied by 12
to determine the minimum annual income needed to qualify. This amount is
compared to the income distribution of households. The percent of the
households with incomes greater than or equal to the minimum income becomes
the HOUSING AFFORDABILITY INDEX (HAI).
NOTE: The quarterly HAI series begins in 2006, prior to that the series was
monthly. The quarterly HAI for a given geographic area in a particular
quarter is based upon the quarterly median price for that area as well as
the quarterly income distribution for that area.