(MoneyWatch) Homes are more affordable than they've been in decades, according to data released Wednesday by the National Association of Realtors. In fact, 2012 is likely to go down as a record year for home affordability.
NAR's home affordability index stood at 198.2 in November, and the trade association predicts a record high of 194 for all of 2012. The previous record was set in 2011, when the index hit 186; NAR began keeping the records in 1970.
Home affordability is based on median home price, median family income and average mortgage interest rates. An index of 100 represents the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, with 20 percent down and 25 percent of income devoted to mortgage payments.
The current level of affordability means a median-income household has twice as much buying power, setting a new record in 2012. Housing experts are optimistic that homes will remain highly affordable in 2013.
"Rising home prices and a gradual uptrend in mortgage interest rates will offset improvements in family income, but 2013 will likely be the third best on record in terms of household buying power," said NAR chief economist Lawrence Yun in a statement. "A window of opportunity remains open for buyers who can qualify for a mortgage."
Low home prices and mortgage interest rates are big perks for buyers who can get financing, but they also prove that the housing market is still struggling to recover. Although home prices are generally trending upward, many homeowners still find themselves with houses worth less than what they bought them for. That's largely due to the fact that properties are appraised against comparable homes that are more affordable than ever.
Even homeowners who aren't "underwater" on their homes are perched on the edge of their own personal "fiscal cliff." According to a recent survey sponsored by home warranty company TotalProtect, a staggering 61.5 percent of homeowners would be devastated financially by a home repair that cost less than $2,000.
That means if a furnace or water heater gives out, an electrical system malfunctions or a plumbing line breaks, most homeowners would experience a significant financial setback. In some cases, it could take years for them to pay off the repairs -- plus interest.
Even buyers who can afford homes and the repairs that go with them may still run into trouble. Tight lending restrictions kept many would-be buyers out of the market in 2012, and this trend could continue well into the new year if murky lending requirements remain in place.
Until banks are willing to lend and consumers feel more confident spending money, the housing recovery will continue to crawl. With would-be buyers running into financing headaches and homeowners afraid that the slightest home repair could ruin their finances, it's clear that the housing market remains in need of fixing.