The Best Home Affordability in a Generation Isn’t Helping the Housing Market

Recent housing data released by the National Association of Home Builders (NAHB) and the Commerce Department points to a weak housing market that will continue to be weak in 2011 and into 2012. Consumers haven't responded to mortgage rates that are near record lows and housing is more affordable than it has been in a generation. Current conforming 30 year mortgage rates are averaging 4.71% as reported by MonitorBankRates.com.

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The National Association of Realtors' housing affordability index is at the lowest level ever since records began in 1970. The typical monthly mortgage payment (principal and interest) for the purchase of an existing median-priced home is only 13 percent of gross household income. Just a few years ago many potential homeowners were priced out of the frothy housing market.

The numbers released by the NAHB showed new home builder sentiment stuck at a low of 16 in their National Association of Home Builders/Wells Fargo Housing Market Index (HMI).  The Commerce Department said new home construction and permits for future building both declined in April.

Both numbers show how bad things are right now in the housing market but will help the market recover in the long run. Fewer homes are being built now and once demand catches up with supply the home prices will recover.

Before we get to that point, the glut of foreclosures and existing homes for sale has to come down. Existing home sales have been uneven for the past several months (see video below). Other factors weighing on the housing market include high unemployment and the perception that buying a home is a bad investment.

Here is more on existing home sales in March from Lawrence Yun, NAR chief economist.

 
Author: Brian McKay
May 18th, 2011

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