David Learah, National Association of Realtors' chief economist, said housing affordability conditions remain historically high. "During the first half of this year, the housing affordability index experienced the highest levels in 30 years," he said. "Even with the drop in the third quarter, the index is about the same as it was for all of last year, which was a record year for sales."

The index shows the typical household had 136.6 percent of the income needed to purchase a home at the third-quarter median existing-home price, which was $177,000. This index measures affordability factors for all homebuyers making a 20-percent down payment, with an index of 100 defined as the point where a median-income family has the exact amount of income needed to purchase a median-priced existing home.

The third-quarter median family income was estimated to be $53,641. The typical family could afford a home costing $241,800 in the third quarter, well above the national median price.

Cathy Whatley, the association's president, framed the purchasing power for the typical household. "In general, people can afford a home costing about 4.5 times their income," she said. "For a median-income family buying the median-priced existing home, this means the monthly mortgage payment for principal and interest is only 18.3 percent of income—well within normal lending guidelines."

According to the Federal Housing Finance Board, the average effective mortgage interest rate for existing homes was 5.66 percent during the third quarter, up from a record-low 5.58 percent in the second quarter; it was 6.41 percent in the third quarter of 2002. This is a weighted average interest rate between fixed and adjustable loans, including the cost of points, and represents a true bottom-line mortgage cost. The Federal Housing Finance Board started tracking interest rates in 1973.

Affordability for first-time homebuyers declined 4.4 percentage points in the third quarter to an index of 78.6 but was unchanged from the third quarter of 2002.

The association's First-Time Homebuyer Affordability Index shows a typical first-time buyer household, aged 25 to 44, with an estimated income of $30,316, had 78.6 percent of the income needed to purchase a typical starter home with a 10-percent down payment. The median starter home price was $150,500 during the third quarter. The index shows a typical entry-level buyer could afford a home costing $118,300 during the third quarter.

"Although first-time buyers have always had to make some sacrifices to make the transition from renting to owning, they are fairly well positioned in many lower-cost markets—especially in the Midwest and South," Whatley said. "Clearly, people are making the effort because two out of five transactions are by people buying their first home. In higher-cost areas, it may mean a lower-end condo or pooling resources with other buyers."

Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors at www.silvar.org. Send questions on any topic to jnewton@jnpr.com.