‘Missing middle,’ median income and more: The housing jargon you need to know

Travis Long/tlong@newsobserver.com

Real estate is full of jargon. It’s getting even harder to decipher as trends change and the market evolves to reflect the growing housing shortage.

The News & Observer put together a two-minute guide to help decode some of the most common housing terms being used today.

Here’s a quick tutorial:

Affordable housing

Housing is affordable when the occupants spend no more than 30% of their income for housing costs like rent, mortgage and utilities, according to the City of Raleigh website.

Affordable housing can be:

  • Subsidized, meaning that it is funded in part by public or private nonprofit dollars.

  • Unsubsidized, meaning that it is naturally occurring in the market (often called “naturally occurring affordable housing” or “NOAH”).

Area median income

The area median income (AMI) is based on the income distribution of all households, including those with no income, within a specific demographic area.

It’s the point that divides the household income distribution into two equal parts: one-half fall below the median income and one-half is above.

AMI is used to determine eligibility for affordable housing programs. These programs are targeted to households earning below 80% AMI, with some programs intended for lower AMI levels.

Average sale price

The average sale price is calculated by adding all the sale prices for homes sold in a specific area within a specified time frame and dividing that total by the number of properties sold.

For instance, if 10 properties sold in a city in the last 30 days, the average home price would be calculated by adding the sale prices for all 10 properties and dividing that figure by 10.

“The problem with the average sale price is that if one or more properties were sold at an extraordinarily high or low price, the average is skewed higher or lower as a result,” Redfin says on its website. “In this case, the average becomes a somewhat unreliable metric.”

Fractional ownership

Fractional ownership, also known as shared ownership, allows multiple owners or families to acquire high-value assets like a house, a vacation home or a condo.

Each party owns a portion, or “fraction,” of the property, matching their share of the purchase price. This allows buyers to maximize their purchasing power, without having to pay the full cost upfront.

The value of each party’s share changes as the asset appreciates or depreciates. It can also take several forms: joint tenancy, which gives all parties an equal interest and rights to a property; or tenancy in common, which gives each owner a partial interest in the property.

This model first became trendy in the 1960s with the idea of “vacation timeshares.” Later, it grew to include all sorts of property like supercars, airplanes, and yachts.

Most recently, it’s resurfaced as an alternative home-financing solution with products like Ownify in the Triangle.

Household income

Household income is the pretax cash income of the householder and all other people 15 years old and older in the household, whether or not they are related to the householder.

Median sale price

The median sale price is the sale price in the middle of the data set when you arrange all the sale prices from low to high. The median sale price represents the figure at which half of the properties in the area sell at a higher price and half at a lower price.

The U.S. Census Bureau lists national median and average sale prices for the past several decades, and the Federal Housing Finance Administration uses these and other figures to create the House Price Index.

Missing middle housing

The term “missing middle” refers to housing types between detached single-family homes and large apartment buildings. This includes duplexes, triplexes, townhouses, cottage courts and small apartments.

These housing types are in the middle of the price range, between subsidized affordable units for those at or below the poverty level and luxury units for the affluent.

The term was first introduced by architect Daniel Parolek in 2010. It has since sparked a movement calling for more diversity of housing types to meet the demand for affordable housing.

Prior to the summer of 2021, these housing types were prohibited in many of Raleigh’s neighborhoods, the City of Raleigh’s website states.

Mixed-income housing

Mixed-income housing refers to city blocks or neighborhoods that provide a diverse housing stock to individuals and families with different income levels.

The term is often applied to projects that include a mix of market-rate and dedicated affordable units (restricted to low-income households) in the same building or development.

These units may be mixed in the same hallway, separated in different buildings or on different floors or wings of the same building.

The term may be used to describe different ratios of affordable and market-rate units, depending on location and context. Similarly, the determination of income level, or range of income, may vary.

Mortgage buydown

A buydown is a way for the borrower to obtain a lower interest rate by paying discount points at closing. Discount points, also referred to as mortgage points or prepaid interest points, are a one-time fee paid upfront.

In the case of discount points, the interest rate is lower for the loan term.

In an alternate form of buydown, the points purchased reduce the interest rate for a given amount of time at the beginning of the loan. This arrangement is typically paid for through funds escrowed by the seller. Since the interest rate is lower during this time, the borrower’s monthly mortgage payments are more affordable.

The buydown can be structured in a variety of ways.

For example, a 2-1 buydown allows homebuyers to save on the interest rate for the first two years of the loan. Buydowns can also use a 3-2-1 structure as well.

Workforce housing

According to the Urban Land Institute (ULI), “workforce housing” is housing affordable to households earning between 60% and 120% of area median income.

Workforce housing targets middle-income workers, which includes professions such as police officers, firefighters, teachers, health care workers and retail clerks.

Households who need workforce housing may not always qualify for housing subsidized by the Low-Income Housing Tax Credit (LIHTC) program or the Housing Choice Vouchers program (formerly known as Section 8), which are two major programs in place for addressing affordable housing needs.

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