Affordability Rose as Foreclosed Houses Pushed Down Prices

Foreclosed houses pushed down home prices to affordable levels in many areas of the country, pushing up home affordability to 72.5 percent in this year’s first quarter and making home prices the most affordable in almost two decades, based on the Housing Opportunity Index published quarterly by Wells Fargo and the National Association of Homebuilders.

The affordability figure means that 72.5 percent of all houses sold in the country in the first quarter were affordable. A home is considered affordable if a household earning the $64,000 nationwide median income is able to purchase the home and spends only up to 28 percent of their income to pay for the home.

The major cause for the rise in affordability was the large inventory of foreclosed houses that pushed down home prices from a little over 60 percent during last year’s fourth quarter to 72.5 percent in the first quarter. Based on Freddie Mac’s data, mortgage rates for fixed rate 30-year mortgage loans hovered below 5 percent during the quarter.

NAHB head Joe Robson said that record low mortgage rates and low prices of foreclosed houses and other residential properties increased affordability. The $8,000 tax credit given to Americans buying their homes for the first time is also enticing consumers to the housing market.

Among big metro areas, Indianapolis has been the most affordable city to purchase a house in the last 15 quarters. It has been topping other cities because of its relatively high income and relatively low home prices. Almost 95 percent of all houses sold in the city were affordable to families earning the city’s $68,100 median income.

Among smaller cities, Sandusky in Ohio has the highest home affordability, with 98 percent of houses sold affordable to residents earning the city’s median income. Other Ohio towns like Springfield, Mansfield and Canton surpassed the 95 percent affordability level.

The least affordable metropolitan area to buy a house is the New York metro area, with only 21.5 percent of the houses sold affordable to households earning the area’s $64,800 median income.

Other big cities with the highest home affordability indexes are Youngstown, Ohio, with 94.4 percent; Akron, Ohio, with 93 percent; and Grand Rapids, Michigan, with 91.8 percent.

However, according to Conference Board economist Ken Goldstein, despite the record home affordability, the sales of new homes, existing homes and foreclosed houses are still relatively low.

Also, the NAHB said that a large percentage of recent home sales have been foreclosed houses largely because of the rising unemployment rate, which is going beyond 9 percent.