Is U.S. Housing Unaffordable? It Depends on How You Chart It by Elaine360

Rising home prices and interest rates made housing less affordable last year than at any time in the last five years, according to data released Tuesday by the National Association of Realtors.

So is it time to sound the siren over a housing bubble? Not really. Nationally, the Realtors’ housing affordability index shows that, excluding the last five years, homes for the U.S. as a whole are still more affordable than at any time since at least 1981.

Two charts help explain what’s going on here. Bubble fears are being fanned by this chart comparing median home prices to household incomes.  Robert Albertson, chief strategist at Sandler O’Neill + Partners LP, produced a report last November titled “Another Housing Bubble” that featured the price-to-income chart prominently.

Before the housing bubble, median prices stood just under three times household incomes. During the housing bubble, they reached nearly four times incomes. After falling during the bust, prices have since rebounded, and they currently stand slightly above their long-run, prebubble average.

“Without a meaningful recovery in jobs and incomes, higher home prices now will, at best, temporarily reduce negative equity in existing mortgages at the expense of new homebuyers,” Mr. Albertson wrote in his report.

Looking at the relationship between mortgage rates, prices, and incomes produces a slightly different picture. Because financing costs have been so low thanks to the Federal Reserve’s stimulus campaign, the monthly mortgage payment as a share of median incomes remains unusually low. On a payment-to-income basis, then, home prices still look undervalued.

DRE #00598428
Senior Director, Coldwell Banker New Homes Division
With over 200 condominium, townhome and loft projects successfully marketed

“Fewer properties for sale with such remarkably low interest rates make it a great time to sell but a more difficult time to buy”