Which set contains central inputs used in the National Association of Realtors Housing Affordability Index methodology?
Correct Answer
C) Income, home prices and financing costs
The NAR Housing Affordability Index compares median family income with qualifying income for a median-priced home under specified mortgage assumptions. Prices, income and financing terms matter; other measures may include taxes, insurance and different cost thresholds. The index is a model, not approval for every household.
Why This Is the Correct Answer
Option C is correct because the NAR Housing Affordability Index compares median family income with the qualifying income needed for a median-priced home under specified mortgage terms. Income, home prices and financing costs are therefore its central inputs. The index is a model of typical affordability, not a statement about any individual household.
Why the Other Options Are Wrong
Option A: Population growth and migration figures
Option A, population growth and migration figures, is wrong because these are demand drivers for housing generally, not inputs to the affordability calculation. The index compares income with the cost of financing a median-priced home.
Option B: Construction costs and land prices only
Option B, construction costs and land prices only, is wrong because the index does not use construction or land costs. It uses home prices, income and mortgage financing terms, and the word only makes this choice even further off.
Option D: Property tax rates across jurisdictions
Option D, property tax rates across jurisdictions, is wrong because tax rates are not the central inputs of the NAR index. Other affordability measures may include taxes and insurance, but the NAR index centers on income, prices and financing costs.
Pay, price, and rate
Affordability depends on what buyers earn (pay), what homes cost (price), and what it costs to borrow (rate).
How to use: Use pay, price and rate to identify the inputs of a housing affordability measure.
Exam Tip
For affordability questions, choose the answer that links buyer income to the cost of buying and financing a home.
Common Mistakes to Avoid
- -Treating population growth as an input to the affordability index
- -Assuming the index uses construction costs
- -Reading an affordability index as approval for any particular household
Concept Deep Dive
Analysis
This question tests what the NAR Housing Affordability Index measures. The index compares median family income with the income needed to qualify for a median-priced home under specified mortgage assumptions. So the central inputs are income, home prices and financing costs.
Background Knowledge
Affordability indexes estimate whether a typical household can qualify for a typical home. Changes in income, home prices or mortgage rates move the index, which is why rising rates can reduce affordability even when prices are flat. Appraisers may cite such measures as background on demand, but they do not replace local market data.
Real-World Application
In a neighborhood analysis, an appraiser notes that mortgage rates rose sharply while median incomes held steady, reducing affordability. The appraiser then checks local sales data to see whether this has actually slowed absorption for the subject's segment.
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