Political  Calculations

For a given amount of income, how much should owning a house cost?

That's really the issue that a housing affordability index needs to address. And as Barry Ritholtz recently noted, it's an issue that the National Association of Realtors®' Housing Affordability Index completely fails to achieve (typos repaired):

In the past, we have discussed how worthless the NAR's Housing Affordability Index is. This weekend saw an odd column in Barron's that was suckered in by the silliness of that index.

This suggests to me it is time to take another pass showing exactly why this index has so little value to anyone tracking housing values and affordability. Let’s begin by going back to our 2008 analysis:

"The index as presently constructed is utterly worthless. It provides little or no insight into how affordable US Housing actually is. Further, what is omitted from the index is especially relevant to the problems occurring in the housing market today. The Index fails to account for — or even recognize — any of the out of the ordinary circumstances that are currently bedeviling the Housing market."


Political Calculations

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