The buyer purchasing power index (BPI) decreased slightly to 7.7 in December 2012. This represents a 7.7% increase in mortgage funds available to today’s buyers over one year earlier. December’s BPI was down from 8.66 in December 2011. All figures remain positive for short-term upward price movement.

first tuesday forecasts the BPI will drop to zero by mid-2013 and remain there throughout 2014. The BPI will go negative in 2015 when long-term rates rise due to an improving economy. Sellers will then experience downward pressure on prices as buyers are able to borrow less with the same income.

buyer purchasing power chartChart updated 1/2/2013

December 2012
November 2012 December 2011
Buyer purchasing power index  (BPI)
7.7
8.99
8.66

The BPI is calculated using the average 30-year fixed rate mortgage (FRM) rate from Freddie Mac (Western region) and the median income in California.

A positive index number means buyers can borrow more money this year than one year earlier.

A negative index figure translates to a reduced amount of mortgage funds available.

An index of zero means there was no year-over-year change in the amount a buyer can borrow. At a BPI of zero, prices cannot rise unless buyers resort to ARM financing techniques.

As BPI rises, a buyer can borrow more money and purchase a more expensive home, but still make the same monthly payment they would have made one year earlier when mortgage money was more expensive.

first tuesday journal online is a real estate news source. It provides analyses and forecasts for the California real estate market, and has done so since 1978.