The buyer purchasing power index (BPI) decreased to 5.05 in February 2013, down from 13.8 one year earlier. While 5.05 is a high score, it has trended downward over the past months.

This February’s BPI represents a 5.05% increase in mortgage funds available to today’s buyers over one year earlier. All figures remain positive for short-term upward home 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 index

February 2013
January 2013 February 2012
Buyer purchasing power index (BPI)
5.05 6.36 13.8

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. Thus, the buyer makes 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.