Home affordability is at a 35 year high. What does that mean? It is time to BUY…
That is, if you can get a loan. Data provided by Moody’s Analytics track the ratio of median home prices to annual household income in 74 markets. According to their analysis, at the end of September housing affordability returned to or surpassed the average reached in the years 1989-2003 in 47 of those markets.
Lax lending during the boom (2003-until the crash) was one of a couple root-causes for house-price inflation, which far outpaced the slight rise in household income. Nationally, the ratio of house price to annual household income peaked at 2.3 in late 2005. But last September, it fell to 1.6, matching the lowest level in 35 years. That number is also significantly lower than the historical average of 1.9 between the years of 1989-2003.
The chief economist at Moody’s Analytics, Mark Zandi, was quoted as saying, “Based on incomes, this is as affordable as it gets. If you can get a loan, these are pretty good times to buy.”
The bad news is that those drastic price declines are leaving many borrowers underwater, or in homes worth less than the amount owed. This is not a good situation to be in and leads to some people walking away from homes willing to accept the penalties associated with foreclosure.
Nearly 27% of homeowners with a mortgage were underwater in the 4thquarter. That was an increase from 23.2% in the previous quarter. The increase was a result of the 2.6% decline in home values and the fact that foreclosures were halted by the banks to correct document-handling errors.
Many housing analysts and leading economists are predicting an additional decline of 5% to 10% before prices reach their bottom late in 2011 or in the early part of 2012. Housing demands are still weak as buyers are leery about their jobs and the economy, and lending standards are much stricter.
One close market that is, at this point, undervalued is Atlanta. But with high rates of foreclosure and underwater borrowers, the downward pressure will continue to be applied to prices. So they will get even more undervalued. Investors, consider yourself warned. There are deals to be realized in GA, and a lot of money to be made with a little patience.
The news is quite the opposite in Charlotte, NC. Real estate is still overvalued, but that is an anomaly in our area of the country.
Some areas will remain undervalued for years, as they deal with a large inventory of foreclosures and weak demand. Historical data suggests that housing could remain undervalued for 6-7 years. The good news for Huntsville Real Estate is the fact that our community has been at the absolute bottom in relation to the amount of foreclosures per capita, and demand is picking up with the influx of people to the area relating to BRAC and new industry.
The takeaway for this blog post, Huntsville: Consider yourself lucky. Demand is increasing, housing prices are stable and didn’t drop in the ways they did across the country. The economy was never truly hurting like it was elsewhere and it is even picking up at a greater pace than elsewhere too. We all are going to have to adjust to the new market, but if you are a buyer or a seller in Huntsville, you are in very good shape.