Housing affordability indices explained: How to read the number

Written by Samantha SheltonNMLS 1647301Updated October 2026

A housing affordability index measures one narrow thing: whether the family earning the median income earns enough to qualify for a mortgage on the median-priced home. The most-cited version, the National Association of Realtors’ Housing Affordability Index, read 103.3 for July 2026, up from 98.3 in July 2025, in the report NAR released August 11, 2026, meaning the typical U.S. family earned roughly 3% more than the income the index says is required, barely above the break-even line of 100.

Young Midwestern family outside a modest home weighing housing affordability before making an offer

That break-even line is the whole point of the scale. Above 100, income exceeds the requirement; below 100, it falls short. The number only makes sense once you know the assumptions behind it: a 20% down payment, and a rule that principal and interest can’t exceed 25% of gross income.

Here’s how housing affordability indices are built, what the readings mean, what they leave out of your real monthly payment, and how to use one as a market thermometer instead of a substitute for your own budget.

Key takeaways:

100 is the break-even line: an index of 100 means a median-income family exactly qualifies for a median-priced home, so 120 signals income roughly 20% above the requirement and 85 signals a shortfall of about 15%.
The assumptions drive the number: NAR’s index assumes a 20% down payment and caps principal and interest at 25% of gross income, so a buyer putting 3% to 5% down is running different math than the headline reading shows.
Use it to compare, not to decide: the index excludes property taxes, insurance, mortgage insurance and your own credit profile. NAR’s insurance-adjusted version came in 4.7 points below the headline index for March 2026 once premiums were counted.

What is a housing affordability index?

A housing affordability index is a ratio comparing the income a typical family actually earns to the income it would need to qualify for a mortgage on a typical home, scaled so 100 is break-even. NAR defines the typical home as the national median-priced existing single-family home and the typical family as one earning the median family income reported by the Census Bureau.

The scale reads in one direction only:

Exactly 100: Precisely enough income to qualify. No cushion, no shortfall.
Above 100: Income exceeds the requirement. At 130, the typical family earns about 30% more than needed.
Below 100: Income falls short. At 90, it earns about 10% less than required.

What do the numbers mean?

Index reading	What it means for a median-income family	Typical buyer implication
85	Earns about 15% less than the required income.	The median-priced home is out of reach on median income. Buyers shop below the median or bring more cash.
100	Earns exactly the required income. Break-even.	A median-priced purchase works with nothing to spare, under 20%-down and 25%-of-income assumptions.
120	Earns about 20% more than required.	Real cushion. Taxes, insurance and maintenance can fit while staying near the 30% housing-cost line.
150	Earns about 50% more than required.	Broadly affordable market. Median earners can reach above the median price or put less down.

Nationally, the annual index averaged 96.9 in 2023 and 97.9 in 2024 before crossing back above break-even to 102.5 in 2025. Two years below 100, then a return just above it, is the cleanest one-line summary of what buyers have faced, our guide to affordability challenges in today’s housing market covers what that meant in practice.

How is the housing affordability index calculated?

The formula is median family income divided by qualifying income, times 100. Qualifying income is the income at which monthly principal and interest on an 80% loan-to-value mortgage equals exactly 25% of gross monthly income. Here is NAR’s own published April 2026 row, worked all the way through.¹

Input	April 2026 value	Where it comes from
Median existing single-family price	$422,300	NAR’s monthly existing-home sales survey
Assumed loan amount (80% LTV)	$337,840	Price minus the assumed 20% down payment
Effective rate on loans closed	6.41%	NAR’s effective rate, derived from Freddie Mac’s PMMS 30-year fixed contract rate plus points and fees
Monthly principal and interest	$2,115	Calculated from the loan amount and rate
Qualifying income (P&I = 25% of gross)	$101,520	$2,115 × 12 ÷ 0.25
Median family income	$112,275	Census Bureau data, projected forward by NAR
Housing Affordability Index	110.6	$112,275 ÷ $101,520 × 100

Historical index figures, not a current rate or an offer.

Two structural notes matter. The rate is an effective rate on loans that actually closed, derived from the Freddie Mac survey rate plus points and fees, not an advertised rate. And since May 2019, when FHFA discontinued several mortgage rate series, NAR publishes only the 30-year fixed version, not the old composite that blended fixed and adjustable rates, so a 2015 reading and a current one aren’t always the same series.

How do home prices move the index?

Price moves the index almost one-for-one through the loan amount. Because the down payment is a fixed 20%, a 10% higher median price produces a 10% larger loan, a roughly 10% larger payment, and roughly 10% more qualifying income, pushing the index down about 9%. That’s why the index slid from 117.5 in February 2026 to 110.6 in April 2026 while incomes were still rising.

Two consequences follow. The index isn’t seasonally adjusted and median prices run on a seasonal cycle, so compare a month to the same month a year earlier, never to last month. And the median is the middle sale price, so it moves when the mix of homes selling changes, not only when homes appreciate, a quarter with more high-end closings lifts it even if no house on the block gained a dollar.

How do mortgage rates move the index?

Rates move the index faster than anything else, because they change the payment without changing the price. That’s the mechanism behind the move from 98.3 in July 2025 to 103.3 in July 2026: the median price kept climbing, but Freddie Mac’s average 30-year fixed rate for July 2026 was lower than a year earlier and median family income grew, and together they outran the price increase.

Be precise about where rates come from, because this is where most explanations go wrong. The Federal Reserve does not set mortgage rates. It sets the federal funds rate, an overnight rate between banks. Thirty-year mortgage rates are priced off the 10-year Treasury yield plus a spread that compensates investors for holding mortgage-backed securities, and that spread widens and narrows on its own, which is why mortgage rates sometimes move opposite a Fed decision. Our guide to the impact of interest rates on home prices follows that through to prices, and our Mortgage Rates & Market guide covers how a broker shops the rate you’re actually offered. For this week’s average rather than a monthly index input, check Freddie Mac’s Primary Mortgage Market Survey, republished every Thursday.

Why do down payment assumptions matter?

Because the standard index assumes 20% down and most first-time buyers don’t put 20% down. On April 2026’s $422,300 median price, 20% down is $84,460. A buyer putting 5% down borrows about $401,185 instead of $337,840, roughly 19% more principal, and adds mortgage insurance on top.¹ The 110.6 reading describes a transaction that buyer isn’t making.

So the down payment assumption is the first thing to check when comparing two indices. The Federal Reserve Bank of Atlanta’s Home Ownership Affordability Monitor assumes 10% down and counts principal, interest, property taxes, property insurance and private mortgage insurance against a 30% share-of-income threshold, following HUD’s cost-burden standard. It measures a different, more realistic transaction, so the two won’t agree, and neither is wrong.

What the index leaves out

The headline index counts principal and interest only, a fraction of what you actually pay each month. Sitting outside the calculation:

Property taxes: Excluded entirely. Rates vary by county, school district and millage, and can add hundreds a month to the modeled payment.²
Homeowners insurance: Excluded. NAR’s parallel insurance-adjusted index came in at 109.0 for March 2026 versus a headline 113.7, in research NAR published April 15, 2026, about 4% weaker than the standard reading suggests.
Mortgage insurance: Excluded, because 20% down eliminates it by definition. Anyone putting less down carries a cost the index never models, whether private mortgage insurance or FHA premiums.³
HOA and condo dues: Excluded, and the index uses single-family sales anyway.
Your credit profile and debts: Excluded. The index applies one ratio to everyone; a real lender looks at your full debt-to-income ratio, and limits vary by loan product and lender.

Add those back and the picture tightens. HUD calls a household cost-burdened above 30% of income spent on housing, and severely cost-burdened at 50% or more. NAR’s 25% cap on principal and interest sits below that line precisely because the other costs are supposed to fit in the gap.

Why do two housing measures disagree?

Because they measure different populations with different methods, and none is the single truth. This is the usual source of confusion when two headlines say opposite things about the same quarter.

NAR median price: The middle sale price of existing homes that closed, so it moves with mix shift as well as appreciation. In July 2026 the median was $434,100 across all housing types but $440,300 for single-family homes alone, and the affordability index uses the single-family figure.
FHFA House Price Index: A weighted repeat-sales index tracking the same property selling twice, drawn only from conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac since 1975. It excludes FHA and VA loans and anything above the conforming limit. Browse the FHFA House Price Index data for the full series.
S&P Cotality Case-Shiller (formerly S&P CoreLogic Case-Shiller): Also repeat-sales, but built on a three-month moving average and published with roughly a two-month lag, the smoothest and slowest of the three, good for trend and poor for timing.

When they disagree, the cause is almost always methodological, not a data error: a repeat-sales index can show deceleration in the same quarter a median-price series shows acceleration, simply because pricier homes happened to close. Our overview of housing market trends tracks how the measures line up over time.

How does affordability differ by region?

Dramatically, the national reading averages away a spread of more than 55 index points. NAR publishes the index for four Census regions, and for April 2026 they ran from 138.0 in the Midwest to 81.0 in the West.

Region (April 2026)	Median existing single-family price	P&I as a share of median family income	Affordability index
Midwest	$327,600	18.1%	138.0
South	$373,100	21.5%	116.5
Northeast	$524,700	25.3%	98.7
West	$629,200	30.9%	81.0

Historical index figures, not a current rate or an offer.

Read the West row carefully: a payment absorbing 30.9% of median family income means the median-income household is cost-burdened by HUD’s definition before taxes and insurance are added. The Midwest, at 18.1%, has room for both. That’s not a rounding difference. It’s two housing economies, which is why regional housing market differences get their own guide. Four regions is still coarse, though; it won’t tell you what’s happening in your county.

How should you use the index in your own decision?

Use it as a thermometer for the market, never as a substitute for your own qualifying number. Three uses hold up:

Track direction year over year: Compare June to June, not June to April, since the index isn’t seasonally adjusted. NAR releases it monthly, and the St. Louis Fed’s FRED database carries the historical series.
Compare markets, not months: Regional and metro readings beat the national number for deciding where a given income stretches further.
Diagnose what moved: Rising incomes and falling rates lift the index; rising prices push it down. The economic factors driving housing demand move those inputs in the first place.

What it can’t do is tell you what you qualify for. Your number depends on your credit, debts, down payment, loan program and which lender prices the file. Find current national and regional readings in NAR’s housing affordability research and methodology, then get a real preapproval to find your own break-even line.

What Michigan buyers should know

Michigan sits inside the most affordable region on the index, and the gap is large. The Midwest read 138.0 for April 2026, the typical Midwestern family earning about 38% more than the income needed for a median-priced home, against a national 110.6 and a West reading of 81.0.

Lower price base, same national rate: Michigan’s typical home value was $269,576 in July 2026 against a U.S. figure of $371,774, per the Zillow Home Value Index (smoothed, seasonally adjusted). Mortgage rates are national, so that price gap does most of the work in Michigan’s favorable reading.
Four regions is still too coarse here: One Midwest number covers markets from Detroit to Ann Arbor, where median sale prices differ by hundreds of thousands of dollars. Use the regional reading for context and county-level data for decisions.
MSHDA assistance changes the down payment assumption: The index’s 20%-down assumption is exactly what Michigan’s MI 10K DPA Loan works around. It offers up to $10,000 toward down payment and closing costs as a 0% non-amortizing second mortgage, repaid when you sell, refinance, pay off the first mortgage or stop living in the home, paired with an MSHDA MI Home Loan. Terms and income limits change, so confirm current requirements first.

Because Align is a Michigan broker, we place MSHDA loans alongside conventional, FHA, VA and USDA options every week, so the down payment assumption baked into a national index isn’t the one you have to live with.

How Align reads the local market

National headlines rarely describe Oakland County. Samantha lives and works here, follows what homes in these neighborhoods actually sell for, and builds your loan around that, not around a national average.

Over the last 12 months, her loans averaged under 14 days from application to clear to close, across more than 100 loans. Clear to close is not the same as closing: your purchase agreement sets the closing date, and her job is to have your loan ready well before it.

Build your homebuyer game plan

Sources: Align Lending loan records, 12 months to October 2026.

FAQ: Housing affordability indices

Here are answers to common questions about housing affordability indices.

What does a housing affordability index of 100 mean?

It means the median-income family in that market earns exactly the income needed to qualify for a mortgage on the median-priced home under the index’s assumptions. Above 100, the typical family has surplus income; below 100, it falls short and needs a larger down payment, a cheaper home, or more income. Readings averaged below 100 nationally in both 2023 and 2024. The arithmetic behind the affordability challenges buyers have faced.

What goes into the housing affordability index?

It divides median family income by the income required to qualify on a median-priced home, then multiplies by 100. The required income comes from the median price, the effective rate on loans that closed, an assumed 20% down payment, and a rule capping principal and interest at 25% of gross income. Rates move it fastest, which is why the relationship between interest rates and home prices drives most year-to-year change.

Does the affordability index account for first-time buyers with small down payments?

Not in the standard version. The headline index assumes 20% down, which understates what a buyer putting 3% or 5% down actually pays, since a larger loan plus mortgage insurance raises the monthly cost. Some organizations publish separate first-time buyer measures, and the Atlanta Fed’s monitor assumes 10% down while counting taxes, insurance and PMI. Our guide on how to save for a down payment covers realistic targets.

Where can I find the affordability index for my metro area?

National and regional readings come from the National Association of Realtors, which also publishes metropolitan median prices and affordability data, and many state and regional planning agencies publish local versions. Federal home price data from FHFA lets you build a rough local picture yourself. Always check which down payment and qualifying ratio a source assumes before comparing two numbers, then pair the reading with our guide to regional housing market differences.

The bottom line on housing affordability indices

A housing affordability index tells you whether a median-income family can qualify for a median-priced home, with 100 as the break-even line. NAR’s index read 103.3 for July 2026, up from 98.3 a year earlier, after averaging below 100 in both 2023 and 2024. A market that has improved without becoming comfortable. But the number assumes 20% down, caps principal and interest at 25% of income, and ignores taxes, insurance, mortgage insurance and your credit profile entirely. It’s a thermometer for the market, not a verdict on your file, and the spread from 138.0 in the Midwest to 81.0 in the West shows how much a national average conceals.

If you’re ready to replace a national average with your own qualifying number, talk to Align Lending. We’ll shop your scenario across our lender network and show you the numbers side by side. Call 248-506-5727 or start online.

Footnotes:

1. The worked example reproduces figures published by the National Association of Realtors for April 2026 and is shown for educational purposes only. It does not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. The 6.41% effective rate is a historical index input for April 2026, not a current rate or an offer; check the Freddie Mac Primary Mortgage Market Survey for the current weekly average. Your rate and terms will depend on your application and market conditions. Return to text. Return to second reference.

2. This is general information about property taxes and housing costs, not tax advice. Property tax amounts depend on local millage rates and assessed or taxable value, which are not the same as purchase price. Consult a qualified tax professional about your situation. Return to text.

3. Align Lending is not acting on behalf of or at the direction of FHA or HUD. FHA mortgage insurance premium rates and durations are set by HUD and are subject to change. Return to text.

Sources: Housing Affordability Index definition, the meaning of a reading of 100, the 20% down payment assumption and the 25% qualifying ratio for principal and interest, National Association of Realtors, Housing Affordability Index methodology and background (accessed August 2026). Index of 103.3 for July 2026, up from 98.3 in July 2025, National Association of Realtors, Existing-Home Sales, July 2026 (released August 11, 2026). Annual index averages of 96.9 (2023), 97.9 (2024) and 102.5 (2025); monthly readings of 117.5 (February 2026) and 110.6 (April 2026); April 2026 inputs of a $422,300 median existing single-family price, a 6.41% effective rate, a $2,115 monthly principal and interest payment equal to 22.6% of income, $112,275 median family income and $101,520 qualifying income; and regional April 2026 readings of 138.0 (Midwest), 116.5 (South), 98.7 (Northeast) and 81.0 (West) with median single-family prices of $327,600, $373,100, $524,700 and $629,200, all from the National Association of Realtors, Housing Affordability Index data table (accessed August 2026). Discontinuation of the HAI Composite Index following FHFA’s May 2019 mortgage rate series changes, and the effective rate calculated from Freddie Mac’s 30-year fixed contract rate plus points and fees, National Association of Realtors, Housing Affordability Index methodology (accessed August 2026). Insurance-adjusted index of 109.0 versus a headline 113.7 for March 2026, National Association of Realtors, “A New Look at Housing Affordability: The Insurance-Adjusted HAI,” Economists’ Outlook, April 15, 2026. Median existing-home price of $434,100 for all housing types and $440,300 for single-family homes in July 2026, National Association of Realtors, Existing-Home Sales, July 2026 (released August 11, 2026). Cost-burdened threshold of more than 30% of income for housing and severely cost-burdened at 50% or more, U.S. Department of Housing and Urban Development. Home Ownership Affordability Monitor assumptions of a 10% down payment and inclusion of principal, interest, taxes, property insurance and private mortgage insurance against a 30% income threshold, Federal Reserve Bank of Atlanta. FHFA House Price Index weighted repeat-sales methodology and coverage of conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac since January 1975, Federal Housing Finance Agency. S&P Cotality Case-Shiller repeat-sales methodology, three-month moving average and approximately two-month reporting lag, S&P Dow Jones Indices methodology. Debt-to-income ratio definition and the note that limits vary by loan product and lender, Consumer Financial Protection Bureau. Michigan typical home value of $269,576 and the U.S. figure of $371,774 for July 2026, Zillow Home Value Index (smoothed, seasonally adjusted), accessed August 2026. MI 10K DPA Loan of up to $10,000 as a 0% non-amortizing second mortgage, repaid on sale, refinance, payoff of the first mortgage or end of owner occupancy, paired with the MI Home Loan, Michigan State Housing Development Authority.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Index readings, market data, program rules and figures shown change over time and vary by property, lender, county and borrower; confirm current numbers with your loan officer and consult a qualified professional about your situation. Nothing here is a forecast of future home prices or mortgage rates. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.