Most Affordable Time in 40 Years to Buy A Home

By:
Kara Johnson | October 12, 2010

U.S. home affordability is at its highest level in more than 40 years, according to a new assessment from Beacon Economics. 

The average U.S. family would need to pay only 16.9 percent of its monthly income to make mortgage payments on an average-sized home, according to the August Beacon Economics Home Affordability Index. The index is based on purchase price, mortgage rates and assumes a 20 percent down payment.
 
That makes housing the most affordable it has been since at least 1969, when the data the index is based on first became available. The index is down two-tenths of a percentage point from July’s reading of 17.1 percent.
 
"Home affordability has reached an historic high," said Christopher Thornberg, founding principal of Beacon Economics. "Nationwide, prices are down approximately 25 percent from their peak, and mortgage financing rates are at all-time lows."
 
He said high levels of affordability should help drive demand and reduce the current supply of excess housing inventory, eventually leading to rising prices and a need for new construction.
 
"While prices may fluctuate modestly over the next several months, we believe the worst of the housing crisis is behind us," said Jordan Levine, the company’s research manager. "We expect prices to stabilize around current levels and likely be higher in the next twelve months."
 
The problem, of course, is that many potential home buyers are not in a position to take advantage of those low price and mortgage rates. Despite offering historically low interest rates, lenders remain very tight with credit, particularly for home purchases in areas where prices may further decline. And with the weak economy, many potential buyers are hard-pressed to come up with money for a down payment or may have taken a hit on their credit scores due to a loss of income.
 
Many analysts expect the housing market to remain stagnant for at least the next year, owing to the large number of foreclosures working through the system, which tend to depress prices. There is also widespread concern that the process could be even further delayed by the ongoing foreclosure documentation scandal, as lenders address concerns that they cut legal corners in filing tens of thousands of foreclosures.
 
Straightening out those problems could slow the number of foreclosures coming on the market in the short term, but ultimately postpone the time when the surplus inventory is cleared out and the housing market returns to normal.

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