Housing Affordability in the US: Buyers Can Make History if They Hurry

Posted by  on Jan 25, 2010

California Home Affordability Up Sharply in 2009

People wanting to buy homes in California and the rest of the country have a unique opportunity, according to the California Association of Realtors (CAR). The association's traditional Housing Affordability Index (HAI) measures the percentage of households that can afford to buy a median-priced home in California. The HAI is considered the most fundamental measure of housing affordability for first-time buyers in the state.

In 2008, the index stood at 29% for the entire state, meaning that only 29% of households could buy a median-priced home in California. By early 2009, that figure had nearly doubled to 55%.

Nationwide, Homes Are More Affordable than Ever

  • According to the National Association of Realtors, falling home prices and low interest rates have boosted the average affordability of homes nationally to historic highs over the past year. Mortgage rates were above 6% in 2008, and home prices have subsequently fallen about 15% nationwide.
  • Affordability has improved more in the western US (where home prices dropped the most) than elsewhere. Buyers in Oregon, Nevada, California, Arizona, and Washington have seen home ownership open to them like never before.

However, All Good Things Must Come to an End

Buyers have enjoyed unique opportunities in 2009. In normal economic cycles, drops in mortgage interest rates are accompanied by increases in home prices, because housing affordability is determined by the mortgage payments required. When interest rates fall, people can afford a larger mortgage. More buyers enter the housing market, and home prices increase accordingly.

However, the recession turned the normal rules on their head, and buyers were treated to falling home prices accompanied by the best mortgage interest rates in history. But this isn't going to continue. The CAR's Housing Affordability Index has already dropped slightly to 52% in the most recent quarter as prices have begun to recover in California. Affordability indicators in other western states like Washington have echoed this trend. And nationally, the number of pending home sales has risen. This is a leading indicator of where home sales and prices are headed.

Mortgage interest rates have nowhere to go but up, and mortgage lenders have been very busy with refinancing and new home purchases. Housing prices are already beginning to recover. Those still on the fence about buying a home or refinancing a mortgage should start looking for lenders and comparing mortgage rates now. Tomorrow may be too late to take advantage of a rare confluence of low rates and low home prices.


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