Ekay Economic Consultants, Inc., in partnership with the Center for Regional Studies at the University of Nevada, Reno, is pleased to introduce our new Housing Affordability Index (HAI) for the Reno Sparks MSA. The HAI compares family income necessary to purchase a median priced home in Washoe County to the median family income in the region. This index will be updated quarterly and was recently created due to non-credible home values and sometimes inconsistent data provided by other indexes from non-local sources.
The Reno MSA Housing Affordability Index is based on a ratio of median family income to qualifying family income, the income necessary to purchase a median priced home in Washoe County. Qualifying income is estimated using a proprietary mortgage calculator with inputs for median home price, average 30-year fixed mortgage rate, and housing-related expenses (property tax, utilities, and mortgage insurance). The index is based on annual data between 1997 and 2018, with data starting in the 1st Quarter (1Q) 2019 reported on quarterly basis.
The following variables are included in the index:
A ratio of 100 indicates that median family income is sufficient to purchase a median-priced home. A ratio below 100 indicates median income is less than qualifying income and affordability issues exist. For example, the 2Q 2019 index of 84.89 indicates median family income is 15.11% below the income necessary to qualify for median priced home.
The index increased by 0.16% between 1Q and 2Q 2019, making homes in the region slightly more affordable. This is due to a small increase in estimated median family income and a larger decline in the quarterly mortgage rate, which declined more than the median home price increase. The index increased by 3.51% compared to 2018, mainly due to declines in the mortgage rate.
Historically, the index saw its lowest period of affordability since 1997 (63.65) in 2006, indicating median area income was 36.35% below the level required to buy a median priced home. The highest level of affordability was reached in 2012 at an index of level 176.50, with median income 76.5% greater than necessary to purchase a median priced home in the area. These affordability levels (up and down) were driven primarily by significant home price growth and declines in the area during the time.