Homes are biggest bargain since 2004
By Les Christie, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) -- With prices crashing around the nation, home price affordability has improved dramatically in many U.S. cities.
As a result, 53.8% of all new and existing homes sold nationwide during the first three months of 2008 were affordable to families earning the median household income of $61,500, according to the latest Housing Opportunity Index released Tuesday by Wells Fargo and the National Association of Home Builders (NAHB).
That's up from 44% during the first three months of 2007 with home prices the most affordable they've been since the three month period that ended June 30, 2004.
"Three factors combined to substantially increase housing affordability," said NAHB president, Sandy Dunn, in a press release accompanying the report. "Mortgage rates returning to near the record low levels of a few years ago, a $2,500 rise in family income nationwide (from 2007 to 2008) and lower house prices."
Home prices dropped about 8% compared with a year ago, according to NAHB, but that doesn't mean that buyers are flocking back to the market.
"This measure can only take you so far in implications for the market," said Dave Seiders, NAHB's chief economist. "There're several factors that the index does not capture."
These include buyer expectations. Many are reluctant to act in falling markets. That sentiment can contribute to market overshoot, according to Seiders, in which prices fall lower than would be their logical bottom.
Richard DeKaser, who, as chief economist for national City Corp., runs his own affordability studies, pointed out that three main factors influence housing market trends: demographics, like more families moving into an area attracted by jobs; sentiment, the perception that the housing market is a good investment at any point in time; and affordability.
"While affordability is an important factor that will contribute to recovery of housing markets eventually," he said, "improved affordability is unlikely to lift markets out on its own."
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