What is the Housing Affordability Index?
The Housing Affordability Index (HAI) is a measure published monthly by the National Association of Realtors (NAR) that indicates whether a typical family earns enough income to qualify for a mortgage on a median-priced existing home. An index value of 100 means a family with the median income has exactly enough to qualify for the mortgage. Values above 100 indicate more affordability; values below 100 indicate less.
The index is calculated using three inputs: median existing home price, median family income, and the prevailing 30-year fixed mortgage rate. When prices rise, incomes stagnate, or rates increase, the index falls (less affordable). When prices decline, incomes grow, or rates drop, the index rises (more affordable). The historical average is roughly 130-160, meaning the typical family has historically earned 30-60% more than needed to qualify for the median home.
Why investors should track affordability
Affordability determines the size of the buyer pool for any property. In highly affordable markets (HAI above 150), a large percentage of households can qualify for home purchases, creating deep buyer demand. In markets where affordability is strained (HAI below 110), the buyer pool is thin, which can slow sales, increase days on market, and reduce investor exit options.
For wholesalers and flippers, affordability affects disposition speed. A renovated flip priced at $250,000 in a market where the median household can qualify for a $300,000 mortgage has a deep buyer pool. The same flip in a market where the median household can only qualify for $230,000 has a much thinner pool, relying on higher-income buyers or cash purchasers.
Affordability and rental demand
There is an inverse relationship between homeownership affordability and rental demand. When buying becomes unaffordable (low HAI), more households remain renters, increasing rental demand and supporting rent growth. Markets with severely constrained affordability often have the strongest rental markets, which benefits landlords and buy-and-hold investors.
This dynamic is why some investors deliberately target markets where buying is expensive relative to incomes. While property acquisition costs more, the rental demand is structurally strong because a large share of the population is priced out of homeownership.
Components of the index
Each component of the HAI tells a different story. Rising home prices reduce affordability even if incomes are growing, because prices typically rise faster than wages. Rising mortgage rates have an immediate and dramatic effect -- a 1% increase in rates reduces buying power by roughly 10%. Income growth improves affordability but tends to be slow and steady rather than dramatic.
The interaction between these three factors creates the affordability cycle. The period from 2020-2023 saw affordability deteriorate sharply as home prices surged 30-40% in many markets while mortgage rates more than doubled from 3% to over 7%. This affordability squeeze reduced existing home sales to their lowest levels in decades.
Limitations of the index
The HAI uses national or regional medians, which obscures enormous local variation. A market like Houston might have an HAI of 140 while San Francisco sits at 70. The national index tells you the broad direction but not the conditions in your specific market. Local MLS boards often publish market-specific affordability metrics that are more useful for investment decisions.
The index also assumes conventional financing with a 20% down payment. First-time buyers using 3-5% down FHA or conventional loans face different affordability math. And cash buyers -- who make up a significant share of the investor market -- are not affected by mortgage rates at all, though they are still affected by price levels.