Despite significant appreciation in housing prices in recent years, housing has remained fairly affordable due to two key factors. First, mortgage rates have been near their lowest levels in decades, keeping the cost of servicing a mortgage low. Secondly, annual increases in family median income have tended to outpace increases in housing prices.

The HAI compares median family income to qualifying income, or income needed to purchase a median priced home at current mortgage rates with a 20% down payment. The HAI has a value of 100 when median family income is just sufficient to purchase a median priced home. Values over 100 indicate that housing is more affordable, while values under 100 indicate that median family income is insufficient to purchase a median priced home.

As of August 2005, the national HAI was 115.4, based on a median priced home of $219,400, a mortgage rate of 5.87%, median family income of $57,511, and qualifying income of $49,824. However, the index varies significantly when looking at different regions of the country - the Midwest's index was 152.7, the South's index was 121.6, the Northeast's index was 111.8, and the West's index was 78.6 (Source: National Association of Realtors, October 2005). The reason for the low index in the West is due to much higher housing prices. For instance, the California Association of Realtors reported that the median home price in California was $568,890 in August 2005, compared to $219,400 for the country. Thus, the qualifying income needed to purchase a median priced home in California was $133,800 compared to $49,824 nationally.