The Mortgage Corner

Nationwide housing affordability, bolstered by affordable interest rates and low house prices, hovered for the third consecutive quarter near its highest level since the series was first compiled 18 years ago, according to the National Association of Home Builders.

The NAHB’s Housing Opportunity Index (HOI) is just one of several that show rising housing affordability at a time of declining incomes and housing values. What makes buying opportunities so special this time, as opposed to past downturns, is the record low interest rates. The various government stimulus plans have been buying down conforming and ‘high balance” conforming 30-year fixed interest rates to below 5 percent.

The HOI showed that 70.1 percent of all new and existing homes sold in the third quarter of 2009 were affordable to families earning the national median income of $64,000, down slightly from a near-record 72.3 percent during the previous quarter and up from 56.1 percent during the third quarter of 2008.

"At a time when housing is at its most affordable, we applaud the recent actions taken by Congress and President Obama to stimulate housing by extending the federal tax credit beyond its Nov. 30 deadline and expanding it to a wider group of eligible home buyers," said NAHB Chairman Joe Robson. "With interest rates now lower than last quarter, the tax credit will encourage even more home buyers to enter the market and help stabilize housing and the economy by creating new jobs, stimulating home sales, reducing foreclosures, cutting excess inventories and stabilizing home prices."

Indianapolis was the most affordable major housing market in the country during the third quarter, a position the metro area now has held for 17 consecutive quarters. Almost 95 percent of all homes sold were affordable to households earning the area’s median family income of $68,100.


Housing inventories continue to decline, so prices are firming in most areas of the country. Existing-home inventories have just declined to 7 months, and are now below 2007 and 2008 levels. This probably means that housing affordability is at its high point, as household incomes are declining at the moment and interest rates cannot go much lower. The September S&P Case-Shiller index for existing, same-home sales showed California cities San Francisco, Los Angeles, and San Diego with 3 of the top 4 price increases.


Due to the increased affordability, first-time homebuyers accounted for 47 percent of purchases and were mostly buying using FHA insured loans. Investors bought 15 percent of homes in October, according to a recent Campbell Communications survey. About 72 percent of these purchases were cash. Current homeowners bought 38 percent of homes sold in October and used a mix of financing.


The key to continued affordability will be maintaining the record low interest rates. This should continue until at least March 2010, when the Federal Reserve has said it will discontinue purchasing Mortgage Backed Securities that set the price of fixed rate mortgages. The Fed has bought almost $1 billion to date, but it is the private financial sector that must replace the Fed’s purchases next year. That will happen when we see a decline in default and foreclosure rates, which are dependent on an improving jobs market. Stay tuned.

Harlan Green © 2009