Special Studies, May 3, 2011
By Rose Quint, Assistant Vice President for Survey Research
Economics and Housing Policy
National Association of Home Builders
Report available to the public as a courtesy of HousingEconomics.com
The National Association of Home Builders produces a quarterly index measuring housing affordability in the United States as well as in most of the country’s major metropolitan statistical areas. The index, known as the NAHB/Wells Fargo Housing Opportunity Index (HOI), was launched in the first quarter of 1991 and has been published quarterly during the past 20 years. The national HOI is defined as the share of all homes sold in the country in any given quarter that were affordable to a family earning the national median income. Similarly, metropolitan area/division HOIs indicate the share of homes sold in a particular area that were affordable to families making the area’s median income..
Since its inception, the HOI has never been tabulated by race or ethnic group; rather it has always been computed as a global measure of affordability for the entire population of the nation or a particular metropolitan statistical area/division (available to the public). Income differences among races and ethnic groups, however, are so significant that NAHB decided it was worthwhile to use home price data from 2010 to produce separate HOIs by race/ethnicity.
This article presents NAHB’s first-ever calculations of Housing Opportunity Indices broken down by race/ethnicity for the country as well as for its major metropolitan areas/divisions.
National HOI by Race/Ethnicity in 2010
In order to create a sizeable dataset from which race/ethnic breakdowns could be constructed, home sale price data for all four quarters of 2010 were aggregated. An average annual mortgage interest rate was also calculated (4.90 percent). Median family income estimates for each race/ethnic group from the 2006-2008 American Community Survey (ACS) were used to calculate the ratio of each race/ethnic group’s income over that of the overall country. Those ratios were then applied to HUD’s estimate of national median family income for 2010 - $64,400. HUD does not estimate current incomes by race or ethnic group. HUD’s 2010 estimates are based on 2006-2008 ACS income data, so applying ACS income ratios is essentially equivalent to using the HUD methodology to estimate median family income for minority groups.
The results are 2010 median family income estimates of $69,000 for Whites, $42,300 for Blacks, $44,100 for Hispanics, $80,500 for Asians, and $43,200 for American Indians/Alaska Natives. Hispanic is considered an ethnic group rather than a race, so a family identified as Hispanic may be of any race.
As shown in Table 1, the national HOI for “all” race/ethnic groups combined was 72.8 in 2010, which means that 72.8 percent of all homes sold in the United States in 2010 were affordable to families earning the national median income of $64,400. Furthermore, the home price data purchased by NAHB produced a national median home price of $178,000 for 2010, a rather accurate estimate, given that the median price of existing homes in 2010 was $172,900  while the median price of new homes was $222,600. Six percent of all home sales in 2010 were new homes and 94 percent were existing homes. In addition, the overall HOI for 2010 was based on 3.0 million transactions, about 58 percent of all new and existing home sales transacted that year.
When analyzed by race/ethnicity, the data show an HOI of 80.3 for Whites, which indicates that 80.3 percent of all homes sold in the country in 2010 were affordable to Whites earning the group’s median family income of $69,000. Meanwhile, the HOI for Blacks was 53.0 (27.3 points lower than the HOI for Whites), which means that only 53.0 percent of all homes sold in 2010 were affordable to Blacks making the group’s median family income of $42,300 that year. For Hispanics earning the group’s median family income of $44,100, only 51.0 percent of all homes transacted in the country in 2010 were affordable to them (29.3 points lower than the HOI for Whites). Asians, who earned the highest median family income ($80,500) of all races/ethnicities analyzed, were able to afford 76.4 percent of all homes sold in 2010 (only 3.9 points behind the HOI for Whites ). For American Indians/Alaska Natives earning the group’s median family income of $43,200, 58.7 percent of all homes sold in the US in 2010 were affordable to them (21.6 points lower than the HOI for Whites).
Metropolitan Areas’ HOI by Race/Ethnicity in 2010
In a computation similar to the one done for the country as a whole, estimates of median family income by race/ethnic group were extracted from the American Community Survey for each of the metro areas/divisions covered in the HOI. Ratios were calculated of each race/ethnic group’s income over the overall income of each area, and then applied to HUD’s estimates of median family income in each of the 227 metros/divisions covered by the HOI in 2010.
Data for all areas can be found in the “Additional Resources” box at the top of this article, but Table 2 shows the HOI for “all” races/ethnic groups combined, as well as separately for Whites, Blacks, Hispanics, Asians, and American Indians/Alaska Natives for the 10 most populous metros/divisions in the country.
In the New York-White Plains-Wayne, NY-NJ division, for example, 22.8 percent of all homes sold in 2010 were available to families making the area’s median income of $65,600. Among Whites, however, the HOI was 46.1, which means that 46.1 percent of homes sold in New York were affordable to White families in that area earning this group’s median income of $97,300. In contrast, only 13.4 percent and 8.8 percent of homes sold in New York in 2010 were affordable to Black and Hispanic families, respectively. Black families in New York earned a median income of $50,100 in 2010, while Hispanic families earned a median of $41,100. For Asians, 23.4 percent of all homes sold in this area were affordable to families making their median income of $66,000, while the share was 15.2 percent among American Indians/Alaska Natives.
In Los Angeles, meanwhile, 40.3 percent of all homes sold in 2010 were affordable to families earning the area’s median income of $63,000. That share was much higher for Whites (68.2 percent) and Asians (52.3 percent), but much lower for Blacks (29.2 percent), Hispanics (22.8 percent), and American/Indians/Alaska Natives (32.1 percent).
Another way to look at metro areas’ HOIs across race/ethnic groups is to compare the HOI for a particular minority group to the HOI for Whites in the same area. In Table 1 the largest discrepancies occur between Whites on the one hand, and either Blacks or Hispanics on the other. Blacks and Hispanics also are the largest minority groups in the U.S. (and therefore the groups we would expect to find most often represented in significant numbers in various areas across the country), so the following section focuses on HOI differences between Whites and these two groups.
Are there areas where HOIs for Blacks or Hispanics exceed those of Whites? The data indicate that this does not happen very often at all. In fact, among large metro areas (population 250,000 or more), the HOI for Blacks was higher than that of Whites only in four areas, while the HOI for Hispanics was below the HOI for Whites in every case analyzed.
Table 3 shows the top 10 large metro areas where the Black/White HOI differences are most favorable for Blacks. This table indicates that the HOI for Blacks was higher than that for Whites only in four of the large metropolitan areas covered: in Rockingham County- Strafford County, NH, for example, 91.3 percent of homes sold in 2010 were affordable to Black families making their group’s median income, yet only 79.3 percent were affordable to White families earning that group’s median income (a difference of +12 points). Although the data show Blacks having a considerably higher median family income than Whites in Rockingham and Strafford counties ($117,600 vs. $86,104), these are counties with a relatively small number of Blacks—fewer than 3,200 (less than one percent) out of a total population of more than 400,000. Most of the other metropolitan areas in Table 3 also have relatively small black populations. The exceptions are the last two metro areas on the table, where the White HOI already exceeds the Black HOI by roughly 10 points.
It’s also important to remember that race and ethnicity are distinct concepts, so Whites can be Hispanic. In most areas the largest share of Whites are non-Hispanic. However, in Mc Allen-Edinburg-Mission and Brownsville-Harlingen well over four-fifths of the population is Hispanic, so Table 3 is effectively comparing HOIs for two minority groups in these two metros.
Table 4 lists the large metro areas with smallest differences in HOI between Hispanics and Whites—as there was no large metro area in 2010 where the Hispanics’ HOI surpassed that of Whites’. In Akron, OH, the area where the two were the closest to being equal, 88.8 percent of homes sold in 2010 were affordable to Hispanics earning their group’s median family income, compared to 89.6 percent of homes for Whites (a difference of –0.8 points). Other cities where the HOI among Hispanics was within five points of their White counterparts include Pittsburgh, PA, Rockingham County-Strafford County, NH, and Canton-Massillon, OH.
Although the tendency is not quite as extreme as in Table 3, many of the metro areas in Table 4 again have relatively small populations of the minority group under study, and this is especially true at the top of the table. Among the four large metros where White and Hispanic HOIs are closest to being equal, Hispanics in each case account for fewer than 2 percent of the total population.
In conclusion, while the HOI provides a useful overall measure of overall housing affordability for the country or a specific market, income differences across race/ethnic groups are so significant, that a breakdown of the HOI by race/ethnicity in fact reveals stark differences in affordability across these groups: Whites generally have much higher HOIs than Blacks, Hispanics, American Indians/Alaska Natives, and to a lesser degree, Asians.
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Table 5. HOI & Income by MSA (Excel)
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 The HOI has been published quarterly since the first quarter of 1991, with the exception of six quarters in 2002-2003, when the underlying data was not available due to budget constraints.
 To compute the HOI, NAHB uses estimates of median family income from the U.S. Department of Housing and Urban Development, data on local property taxes and insurance from the Census Bureau’s American Community Survey, mortgage interest rates from the Federal Housing Finance Agency, and home sale price data purchased from CoreLogic Inc. More specifically, the HOI is calculated by comparing the cost of each transaction (home price, taxes, and insurance) to the area’s median family income. The cost is calculated assuming a 30-year fixed rate mortgage and a 10 percent down payment. If the overall cost is less than 28 percent of the area’s income, the transaction is deemed affordable. The HOI is then computed as the ratio of affordable transactions over the total number of transactions in an area during a specific quarter.
 Estimated by the National Association of Realtors.
 Estimated by the U.S. Census Bureau.
 Although nationally Asians had a higher MFI than Whites, this was not the case in most metro areas/divisions. In fact, Asians had higher MFI (than Whites) in only about 40 percent of areas covered. The remaining 60 percent of areas (where Asians had lower median incomes than Whites) tend to be the larger metros where home prices are the highest in the country and where most of the home price data comes from. As a result, Whites’ affordability in these data-rich areas was higher than that of Asians, driving the national HOI among Whites to be higher than that of Asians.
 When the share of Blacks in an area is this low, the margin of error on their income estimate tends to be high. For the median family income estimate used to compute the Black HOI in the Rockingham County-Strafford County division, the margin of error is over $32,000.