Housing Affordability Methodology

Housing Affordability Methodology

The housing affordability analysis calculates the income required to afford the typical home price in each geographic area, incorporating all major components of homeownership costs.

Monthly Housing Cost Components

Total monthly housing cost is calculated as:

C_monthly = M + T + I_p + I_m

where:

• M = Monthly mortgage payment
• T = Monthly property tax
• I_p = Monthly property insurance
• I_m = Monthly mortgage insurance (if applicable)

Mortgage Payment Calculation

The monthly mortgage payment uses the standard amortization formula:

M = L × [r(1+r)ⁿ / ((1+r)ⁿ − 1)]

where:

• L = Loan amount = P × (1 − d)
• P = Home purchase price
• d = Down payment percentage (default 20%)
• r = Monthly interest rate = R_annual / 12
• n = Number of payments = 360 (30-year mortgage)

Property Tax

Monthly property tax is calculated as:

T = (P × τ) / 12

where τ is the effective property tax rate, derived from ACS data as the ratio of aggregate monthly owner costs to aggregate owner-occupied housing units:

τ = (Aggregate Selected Monthly Owner Costs (B25090) / Owner-Occupied Housing Units (B25082)) × 12 / Home Value

In practice the chart computes the rate two ways and uses the first that is available for the geography:

1. All owner-occupied units: B25090_001E / B25082_001E (aggregate monthly costs across all owner units, divided by all owner units).
2. Mortgaged-units fallback: B25090_002E / B25082_002E (aggregate monthly costs for units with a mortgage, divided by units with a mortgage). Used when the all-units value is missing or zero.

The resulting monthly-cost-per-unit is annualized and divided by the local typical home price to express τ as a fraction of home value per year, then held constant within each year.

Data Sources:

• ACS Table B25090: Aggregate Selected Monthly Owner Costs (all owner units / mortgaged units)
• ACS Table B25082: Aggregate Value (owner-occupied housing units)

Property Insurance

Monthly property insurance is calculated as:

I_p = (P × ρ) / 12

where ρ is the annual insurance rate.

Data Sources:

• Geographic-level insurance rates aggregated from ZIP code-level data
• National average insurance rate used as fallback when local data unavailable

Mortgage Insurance (PMI)

When down payment is less than 20%, private mortgage insurance is required:

I_m = (L × 0.005) / 12    if d < 0.20

I_m = 0    otherwise

Required Income Calculation

The required annual income applies the standard 30% housing cost burden threshold:

I_required = (C_monthly × 12) / 0.30

This assumes that housing costs should not exceed 30% of gross household income, a widely-used affordability standard.

Time Series Construction

The affordability analysis generates monthly time series from 2010 to present by integrating:

1. Home Values: Commercial home value index -- monthly data for middle-tier single-family homes and condos (33rd-67th percentile price range)

2. Mortgage Rates: 30-year fixed mortgage rates from FRED (Federal Reserve Economic Data) series MORTGAGE30US

3. Median Income: ACS Table B19013 (Median Household Income), available annually. Monthly values are constructed by:

   • Using observed historical B19013 vintages where available (the most recent ~14 years)
   • Forecasting forward via a per-geoid linear OLS fit on the most recent vintages (default lookback: 5 years) and interpolating annual values to a monthly cadence
   • Compound monthly growth rate: (1 + r_annual)^1/12 − 1

4. Property Tax Rates: Calculated annually from ACS data, held constant within each year

Geography-level home price fallback

Local home-price coverage is sparse for the smallest geographies. When a geoid has fewer than five years of typical-home-price data available, the chart substitutes its parent county's home-price series for the missing months before computing affordability. The fallback is applied per-geoid only; income, mortgage, tax, and insurance inputs continue to use the local values.

The final time series contains:

• date: Month-end date
• median_income: Median household income (annual, inflation-adjusted)
• required_income: Annual income required to afford typical home price at 30% housing cost burden

Contributing Factors to Affordability

The methodology captures the following factors affecting housing affordability:

1. Home Prices: Commercial home value indices reflect market conditions and housing supply/demand
2. Interest Rates: FRED 30-year mortgage rates capture financing costs
3. Property Taxes: Local tax rates from ACS reflect fiscal policy impacts
4. Insurance Costs: Geographic variation in property insurance premiums
5. Income Growth: Median family income trends from Census data
6. Down Payment Requirements: 20% standard, with PMI penalty for lower down payments
7. Loan Terms: 30-year fixed-rate mortgage assumptions

Data Sources