Affordability Returns to Housing Markets, Low Mortgage Rates Drive Home Sales

The National Association of Realtors (NAR) report US homes at the most affordable levels since 1970, when they began tracking affordability. NAR's affordability index jumped 10.9 percent in December--rising on falling home process and low mortgage rates.

Increasing affordability is likely the primary driver behind the recent nationwide upturn in existing home sales. Pending home sales, released Tuesday rose from a record low of 82.5 in November to 87.7. The 6.3 percent increase in sales is the first rise since August 2008.

Increases in home sales beat most economists and financial analysts were expecting flat sales in December, traditionally a slow seasonal market. Beating expectations significantly put some brief confidence into the financial market, prompting a brief rally.

However, NAR's accompanying statement urged caution stating, "Significant uncertainty still clouds the housing market despite improved affordability." According to Lawerence Yun, NAR chief economist, "For a sustainable housing market recovery and, hence, sustainable economic recovery, we need a significant housing stimulus and mortgage availability for qualified borrowers."

Meanwhile government data released last Thursday shows that new home sales continue to languish, dropping in December by the largest margin since 1994.

Republicans continued to lobby for their mortgage rate proposal to be woven into the pending Senate economic stimulus. This amendment would lower mortgage rates for home buyers and mortgage refinancings down to 4 percent and increase consumer cash flow.

Although rays of hope seem to be springing forth in the housing market, broader economic indicators are still detriorating. Housing prices continue to fall, the stock market still lacks stability, and access to credit remains tight--all impacting consumer spending, which accounts for two thirds of the US economy.