Sunday, November 02, 2008

Housing Affordability Close to 4-Year High in Sept.

According to the NAR's most recent report, the housing affordability index (HAI) reached 135.2 in September, which is close to a four-year high (see chart above) and just slightly below the 135.4 level in February (when 30-year mortgage rates dipped below 6%).

An HAI of 135.2 means that a family earning the median family income in September ($60,730) had 135.2%% of the income necessary to qualify for a conventional loan (at 6.22%) covering 80% of a median-priced existing single-family home in September ($190,600).

Since July 2007 when the HAI was at only 103.6 (due to higher home prices and interest rates, $228,500 and 6.8% respectively), the 31.6 point increase in housing affordability to 135.2 over the last 14 months should continue to play an important role in the recovery process for the slumping real estate market. It's a buyer's market.

Note: The NAR's report on housing affordability index released last Wednesday received no media attention; I couldn't find a single news report. But you'll find hundreds of stories on foreclosures and falling home prices. Go figure. Positive, upbeat news doesn't sell as well as gloom and doom?

15 Comments:

At 11/02/2008 9:15 AM, Anonymous Anonymous said...

NAR has been doing nothing but a cheerleader all the way down. Anything that comes out of this group of self serving greed needs to be viewed with that in mind. Housing prices will continue to fall for a couple more, years buyer beware.

 
At 11/02/2008 9:25 AM, Blogger Mark J. Perry said...

The housing affordability index is a statistical index, based on factual housing market and income data (house prices, mortgage rates and household income). Even if NAR is self-serving, that doesn't explain why the media report mostly negative housing data and not positive housing data.

 
At 11/02/2008 11:03 AM, Blogger PeakTrader said...

Freedom, Socialism, and Optimization

The free market can be viewed as a river. Sometimes water is abundant and sometimes it's scarce. When water is abundant, more water is used, and there's waste. When water is scarce, less water is used, and there's death.

Socialism diverts the water, taking from some and giving to others. However, some need more water than others. So, this also results in death and waste.

Optimal policy controls the flow of water. So, there's neither too much nor too little water. Everyone thrives, because there's always sufficient water for everyone.

So, in the free market system, the strongest live; in the socialist system, the strongest die; and in the optimal system, everyone lives.

------------------------------

Of course, when a socialist system is imposed, the skilled and wealthy flee. We saw that in Castro's Cuba and Chavez's Venezuela (many moved to Florida). There are few skilled workers or wealthy people in North Korea. Russia locks-up rich people. The wealthy in China are the communist elites, who own the state corporations.

Moreover, I may add, the social-fiscal-religious conservatives moved to the suburbs, then the exburbs, then the rural areas, further away from the big cities. I wonder where they'll move next?

 
At 11/02/2008 11:31 AM, Anonymous Lars said...

"Even if NAR is self-serving, that doesn't explain why the media report mostly negative housing data and not positive housing data."

Could it be political? Seems that the media is so invested in getting a Democrat elected, they showcase negative stories if they think it will hurt Republican incumbents (Bush and McCain). You know, its Bush's fault, and McCain is Bush 3.

 
At 11/02/2008 12:35 PM, Anonymous Anonymous said...

Housing prices are even lower during a depression, if we have a depression and the prices drop even lower than I will be celebrating !!!!

And as usual Mark Perry is correct with his views of the liberal news media not reporting on falling housing prices and afforability of homes.

http://latimesblogs.latimes.com/laland/2008/10/case-shiller-la.html

http://www.fresnobee.com/business/story/978045.html

http://www.ktnv.com/global/story.asp?s=9260031

http://www.ocregister.com/articles/zip-percent-area-2209500-home-code

http://www.mydesert.com/article/20081031/BUSINESS04/810300365/1003/RSS02

 
At 11/02/2008 2:17 PM, Blogger Walt G. said...

I guess I'm Mister Doom and Gloom, but isn't the buyer's gain really just the seller's loss? The affordability is up because property values are down, which is reflected in the median price.

You'll have to excuse me if I am not elated about your news because my 401(k) is now a 201(k) (source: my tear-stained financial statement), and my property value has decreased by about 1/3 (Source: zillow.com). I calculate that I lost more wealth in one year than I gained in the prior five years.

It's hard to be upbeat about your news, but I don't let it get me down too much. Although I will be working a few more years than I anticipated before full retirement, I believe the economic situation will get better sooner or later: it always has.

 
At 11/02/2008 2:28 PM, Blogger PeakTrader said...

Unfortunately, you can thank the Paulson Treasury:

Two Major U.S. Policy Mistakes

The first was predictable. However, the second was completely unexpected.

The Bernanke Fed kept a restrictive monetary stance for too long, i.e. the Fed Funds Rate at 5 1/4% until September 2007, and fell behind the curve easing the money supply. This may have resulted in a mild recession.

However, the second major policy mistake turned out to be a disaster. The Paulson Treasury allowed Lehman Brothers to fail, on September 15th, 2008, which coincided with the Ted Spread rocketing and froze the credit market quickly. This single inconsistency in the government's "too big to fail" policy resulted in enormous damage on a global scale. This may result in a moderate or severe recession.

Moreover, the negative news by the liberal media and politicians, which almost completely ignored the benefits of the free market system, including the steeper rise of living standards by U.S. households and the huge efficiency gains of U.S. firms, influenced the masses perceptions and emotions, contributing to a self-fulfilling vicious cycle.

(Hank Paulson was the CEO of Goldman Sachs)

 
At 11/02/2008 3:05 PM, Blogger bobble said...

"Even if NAR is self-serving, that doesn't explain why the media report mostly negative housing data and not positive housing data."

the explanation could be that the media reports mostly negative housing data because, right now, the data *is* overwhelmingly negative.

i recall that at the peak of the housing bubble, most of the housing news reports were positive. several TV shows were devoted to the virtues of getting rich by buying homes, fixing them up and selling them for hefty profits.

i don't know the source of the NAR data in the posted chart. but, according to the NAR over the years, it's always been a great time to buy a house. maybe they don't get as much press anymore because NAR data is now perceived by the MSM to be inaccurate.

 
At 11/02/2008 4:22 PM, Anonymous poor boomer said...

Housing affordability is close to a 40year low for renters.

 
At 11/02/2008 4:24 PM, Anonymous poor boomer said...

peaktrader said:

Socialism diverts the water, taking from some and giving to others.


Zoning diverts the water also, taking from some and giving to others. Read Sowell.

 
At 11/02/2008 7:00 PM, Blogger Arman said...

"The Bernanke Fed kept a restrictive monetary stance for too long, i.e. the Fed Funds Rate at 5 1/4% until September 2007, and fell behind the curve easing the money supply. This may have resulted in a mild recession."

Now the Fed wants to know how it can get banks to lend to each other. DUH! Why would they want to at 1%??? Put the rates back up and things will be fine. If you really believe that the interest rates take 3 to 10 years to manifest into the economy, then why should the Fed even bother to adjust the rates at all, being that the economy in 3 years will be much different than today. Either way you look at it, the Keynesian doctrine of manipulating the economy through interest rates is repeatedly proven absolutely ludicrous. Refusing to acknowledge the complete lack of historical foundation for the notion requires an economist's stubborn oblivion.
Cutting rates discourages lenders from lending! Cutting rates erodes the cash supply.

 
At 11/02/2008 8:07 PM, Blogger PeakTrader said...

Arman, the data dispute your statement. The Fed works in the future economy, because of lags in the adjustment process. Obviously, the Fed has an excellent track record of smoothing-out both long-wave and short-term business cycles. Sustainable growth is optimal growth, because in economic booms (not to be confused with asset cycles, which are residuals of economic policies), there's strain on resources, and in economic busts, there's slack utilizing resources. So, both the boom and bust phases are suboptimal. Obviously, there have been fewer economic boom/bust cycles, since the Great Depression. Much of Keynesian economics is supported by the data.

 
At 11/03/2008 4:24 AM, Blogger Arman said...

>"Much of Keynesian economics is supported by the data."<
Baloney. We are in an extreme cash contraction right now. This started in September 07 when the Fed started to cut rates. All economic activity is predicated on current condition coupled with future expectation. There is absolutely no rationale at all to suspect that economic activity of today is heavily reliant on what the Fed did 5 years ago, except the "stickiness" that Keynes put forward as an excuse as to why his prescriptions were obviously having absolutely no good effect.
Cutting rates discourages lenders from lending! The money supply is not dependent on the bills that the Fed create, but is absolutely dependent on the loans that the local banks create.

 
At 11/03/2008 6:11 PM, Blogger PeakTrader said...

The money supply was restrictive in September 2007, because the Fed tightened the money supply from June 2004 to June 2006 and maintained a restrictive stance, until September 2007. I suggest you read the literature on optimal monetary policy or the Great Depression.

 
At 11/04/2008 11:52 AM, Blogger Arman said...

Again! All economic activity is predicated on current condition coupled with future expectation.
August 07, there is absolutely NO indication that there is a shortage of money. September 07 the fed cuts rates and SUDDENLY there is STRONG indication that there is a shortage of money. Cutting interest rates discourage lenders from lending. The latest cut to rates will show up in collapsing markets within 2 weeks.

"I suggest you read the literature on optimal monetary policy or the Great Depression."
Opinion written by the same bozos who blame FDR for the huge contraction immediately before his election.

 

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