Affordability has been a major concern as home prices in some markets

more than doubled earlier in the decade. After a period in the 1990s of

great affordability when mortgage costs were between 20 and 35 percent

of household income for most U.S. markets, the period after the year

2000 was marked by falling affordability, and in some markets, extreme

un-affordability. Still, not all markets observed the same levels of

increased housing prices and decreased affordability.

When measuring affordability, it is important to not only look at

housing prices, but also to consider variables such as mortgage rates

and area household incomes. Based on this data, we have calculated

median mortgage payments as a percent of an area's median household

income to measure affordability in several markets across the country.

Observing affordability over a period of the past 18 years (1990

through 2008) highlights two distinct patterns among different

metropolitan areas. The first group of markets clearly exhibits a sharp

rise in housing prices significantly exceeding income growth,

accordingly leading to falling affordability. For example, prices in

San Diego, CA, rose significantly between 2002 and 2006 with mortgage

costs for the median priced home going from around 40 percent of income

to almost 70 percent of income. Nevertheless, with prices falling,

interest rates low, and generally improving affordability conditions,

the affordability of the San Diego housing market is now back to the

levels of 2000 (see Figure 1). Although not to the same extreme, other

markets experienced similar declining affordability during the boom

with a return to affordability levels earlier in the decade. Miami, FL

and Boston, MA exemplify such cases (Figure 1). More specifically,

coastal markets, East and West, experienced much greater affordability

challenges than did the markets in the central part of the country.

Figure 1

Another group of markets, though experiencing some levels of

decreasing affordability, remained relatively stable over the same

period. Such markets, for example, saw mortgage costs rise from about

20 percent of income to about 40 percent for the median priced home.

These rates, even during the housing boom were well below the elevated

rates observed in the first group of markets. As shown in Figure 2,

affordability in Philadelphia, Portland, and Washington DC, for

example, remained relatively steady, with again a significant drop

after 2006. In several cases affordability conditions are similar to

levels seen before the 2000. By the end of 2008, affordability in

Washington DC was above the level of 1990, for example.

In addition, while sweeping price increases started early in this

decade for the first group of markets, the second group, with smaller

increases, also observed changes several years later, starting around


Figure 2