Affordability is dependent upon both housing costs and incomes in an area. A chart of housing affordability indexes and cost and income characteristics is provided including an Overall Housing Affordability Index that is based on median household income for all housing, sold housing, and rental housing (also, for all housing, adjusted versions at 80% of median household income and 60% of median household income), a Lowest-Quartile Housing Affordability Index at the median household income of the bottom quarter of all households for all housing, a Sold Housing Affordability Index at the median owner income, a Sold Housing Affordability Index at the median renter income, a Rental Housing Affordability Index at the median owner income, and a Rental Housing Affordability Index at the median renter income.

Also provided are the data components that are used in creating the housing affordability indexes. These data components include the number of households, tenure (the percent of owners and renters), annual median household income for all households, owners, and renters, monthly median renter cost (HUD median gross rent for all units), monthly median owner cost (based on the median sales price of both new and existing sales from MLS realtor data adjusted for mortgage terms, homeowner’s insurance, and taxes), and annual median sales price of both new and existing sales from MLS realtor data. In addition, the percent of cost burdened households (households paying more than 30% of income for housing) is provided.

The Overall Housing Affordability Index (HAI) measures the percent of the median household income required to occupy the median dwelling unit. For example, an index of 42.3% means that the average household spends 42.3% of its household income for housing. A high index indicates higher housing cost burden while a low index reflects lower housing cost burden. The HAI is weighted by tenure which refers to whether a household is a renter household or an owner household. For a more detailed description of the housing affordability index see below Overall Housing Affordability Index (HAI).

Several indexes are provided that show affordability for lower-income households. The indexes based on 80% of median household income and 60% of median household income are mathematically adjusted versions of the Overall Housing Affordability Index. The Lowest-Quartile Housing Affordability Index is the percent of the median household income of the bottom quarter of all households that is required to occupy the median dwelling unit.

The Sold Housing Affordability Index at the Median Owner Income measures the percent of the median income of owners required to occupy the median sold unit. The Sold Housing Affordability Index at the Median Renter Income measures the percent of the median income of renters required to occupy the median sold unit. The Rental Housing Affordability Index at the Median Owner Income measures the percent of the median income of owners required to occupy the median rent unit. The Rental Housing Affordability Index at the Median Renter Income measures the percent of the median income of renters required to occupy the median rental unit.

The number of households is provided for reference. Households are either owner households or renter households. Tenure refers to owning or renting. The percent owners and percent renters in an area is used as a proxy for housing supply (a proportionately large number of owners equates to a proportionately large supply of owner housing). So that the supply of housing is taken into consideration, the housing affordability index is weighted by tenure. Otherwise, if an area is largely comprised of owner households (say 80% owner households), the median owner cost to median income ratio contributes more heavily (80%) to the affordability index than the median renter cost to median income ratio which contributes only 20%.

Median household income includes the salary and wages of all household members. Median household income is used in calculating the Overall Housing Affordability Index and its sold and rental components. Median owner income is the median household income of owner households. Median renter income is the median income of renter households. Median owner income and median renter income are used in calculating the Sold and Rent Affordability Indexes.

Median renter cost is based on median gross rent, which includes utilities, and is the estimated monthly cost to rent. The affordability index uses HUD’s median gross rent for all units adjusted to better reflect individual jurisdictions as the estimate of median renter cost.

Median owner cost is the estimated monthly median cost to own. Median owner cost is based on the Principal, Interest, Taxes (PIT) payment required plus home insurance premium for the median unit sold in an area. It assumes the purchase of a home at the median sales price for new and existing units sold in an area over a particular time period, a 5% down payment, and a 30 year mortgage at a fixed interest rate (the state average mortgage interest rate including fees and assuming 5% down for a particular time period). The calculated cost for principal and interest is adjusted by adding the monthly cost for real estate taxes (for localities, the local real estate tax rate for a particular year adjusted to a monthly rate; for metropolitan areas and the state, an average of local rates weighted by the number of owners for a particular year adjusted to a monthly rate). In addition, the cost for principal and interest is adjusted by adding an estimated monthly cost for homeowner’s insurance based on average premiums for Virginia provided by the National Association of Insurance Commissioners for various ranges of home values (assumed 80% of median sale price as the home value).

Median sales price is a component of the median owner cost in the affordability index. Median sales price for a particular time period is based on Multiple Listing Service sales data provided by the Virginia Association of REALTORS® and is the median sales price at closing including both new and existing homes.

The Percent of Cost Burdened Households reflects the degree to which individual households within a geographic area have housing costs that exceed the accepted definition of what is affordable. Households paying more than 30% of income for housing are considered cost burdened.