Affordability Index

DEFINITION of 'Affordability Index'

A measure of a population's ability to afford to purchase a particular item, such as a house, indexed to the population's income. An affordability index uses the value of 100 to represent the position of someone earning a population's median income, with values above 100 indicating that an item is less likely to be affordable and values below 100 indicating that an item is more affordable.

BREAKING DOWN 'Affordability Index'

An affordability index is most often associated with housing costs. Housing affordability indexes often compare the cost of purchasing a home in different lacations. Points above 100 indicate that a typical family will be less likely to qualify for a mortgage on a home in the area, while a value of 100 indicates that the typical family can just barely afford to live there.

RELATED TERMS
  1. Benchmark

    A standard against which the performance of a security, mutual ...
  2. House Price Index - HPI

    A broad measure of the movement of single-family house prices ...
  3. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket ...
  4. New Home Sales

    An economic indicator that measures sales of newly built homes. ...
  5. Index

    A statistical measure of change in an economy or a securities ...
  6. S&P/Case-Shiller Home Price Indexes

    A group of indexes that tracks changes in home prices throughout ...
Related Articles
  1. Home & Auto

    10 Tips for Getting a Fair Price on a Home

    When the housing market booms, it's tougher than ever to get a good price. Make sure the house you choose is worth the price you pay.
  2. Investing Basics

    Understanding The Case-Shiller Housing Index

    This index is a widely-used and respected barometer of the U.S. housing market and the broader economy.
  3. Forex Education

    The Big Mac Index: Food For Thought

    You may have heard of this mouth-watering method of evaluating currencies, but make sure you know the whole story.
  4. Fundamental Analysis

    Hamburger Economics: The Big Mac Index

    In theory, PPP stands up much better than it does in reality. Find out how to evaluate currencies according to the price of a Big Mac.
  5. Home & Auto

    Buying A Home: New Or Previously Owned?

    Brand-new homes have distinct advantages - and drawbacks. Find out what you need to know to make an informed decision.
  6. Home & Auto

    Are You Ready To Buy A House?

    There are a number of factors, aside from cost, that you should think about before buying a new house.
  7. Home & Auto

    8 Signs Your Neighborhood Is On The Upswing

    If you were hard-hit by the real estate crash, you may be wondering when things will get better for you. We show you how to keep tabs.
  8. Fundamental Analysis

    The 3 Best Investments When Bull Markets Slow Down

    Find out why no bull market lasts forever, and why investors should shift their assets away from growth and toward dividends when stocks slow down.
  9. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
  10. Economics

    Economist Guide: 3 Lessons Adam Smith Teaches Us

    Learn three critical lessons about economics from 18th century philosopher Adam Smith, considered by many to be the father of economics.
RELATED FAQS
  1. Where is the cost of living lowest in the U.S?

    Although the United States doesn't find itself on the top 10 list of Business Insider's "The Cheapest Places To Live," there ... Read Full Answer >>
  2. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  3. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>
  4. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  5. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  6. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Just-in-time (JIT) inventory management focuses solely on the need to replenish inventory only when it is required, reducing ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center