Housing Affordability Proves Elusive

Thirty-year Fixed Mortgage rates remain at 6.0%. Rising treasury yields, however, would increase upward pressure on mortgage rates, suggesting the decline in housing prices is far from over.

I normally measure housing affordability by the ratio of the S&P Case-Shiller Composite Housing Index to Disposable Income per capita (before adjustment for inflation). There is a sharp fall to nearly 0.45%, the high from the late 1980s, but the index remains well above the 0.40% level normally needed to motivate home-buyers.

Bear in mind that the above does not even allow for the bite that higher fuel/gas prices have taken out of disposable incomes — nor the depressing effect they will have on house prices in outlying suburbs with longer commutes.

Disclosure: None

Comments

[User 201843]

A generation lost to greed and bad bankers.

[User 169490]

There's nothing "lost" here. It's just a transfer of wealth from the foolish or the comfortable to the smart or lucky brave ones who found the courage to bail before the thing blew up (or in the case of realtors, brokers and bankers ... the crooked made $). Dumping my Pasadena, CA house in 2005 turned me into a millionaire (but a million dollars isn't what it used to be).

[WAKEUP]

"Thirty-year Fixed Mortgage rates remain at 6.0%." Sometimes I jokingly tell my colleagues that I feel we are headed back to the 1950's, overall, in this country. But I noticed a chart, today, which displayed a bank mortgage rate average of 5.00%, for the date, September 1, 1959. Glancing further at the chart, I noticed that the 5.00% rate (and lower) was fairly constant, in those times. Yes, I am fully cognizant of the fact that rates fluctuate all the time. Still, home prices are headed lower and lower and lower, and interest rates are doing same. Mortgage loans, even for well-qualified borrowers are getting harder and harder to get. People are already beginning to keep their old cars, longer. Grocery shoppers are getting more careful about their food purchases; a butcher in a large grocery store remarked to me, this week, that the cheaper cuts of meat are selling well, but sales of the expensive cuts are suffering. An auto mechanic advised me that I would have to leave my car with him for at least two days, for what amounts to a tune-up. "I'm workin' on 'em as fast as I can," he told me. His point was that he is swamped with work. He also mentioned that he is getting more work orders for full rebuilding of engines, which suggests to me that more people are going to drive that car a long time, instead of trading it. The last figures I saw for new car sales showed a 15% decrease, year-over-year. I realize that what I am relating is a microcosm, but we all live in microcosms. I am also aware that these actions could be a short-term reaction to a relatively short-term recession. Still, this one does not FEEL like a short-term problem. What I am seeing and hearing is indicative of a sea-change in the way people are reacting to their new circumstances. They are digging in. Maybe the indicators, such as interest rates, sales of new cars, and shopping habits are finding their way back to the fifties. Oh, I can hear the howls, now. Those who thought the bubbles were going to float us, forever, are going to insist that it's all short-term, but I am not sure of that, at all. I'm still watching, and listening.

[bill d]

We've been here before - happily for some of you, you weren't there or you don't wish to remember - wasn't fun then and it ain't now.

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[Matt75]

Well, it all depends where you live. For instance, here in the Western New York area, there was no boom to speak of, so now there has been no bust....just slow and steady growth, which earned this area 3 of the top 10 rankings for best real estate markets(Buffalo, Rochester and Syracuse). Our housing prices are among the most affordable in the nation, with many nice houses available for under $125,000. I cannot for the life of me understand why people decide its better for them to move elsewhere so they can earn an extra $1000 per month, only to pay that much or more back out of their pocket due to the higher cost of living in a lot of places, which in some places borders on the absurd.