Lower prices make owning a home  “affordable” to many
Feb 2011 10

The destructive world economic meltdown has had one positive effect: homes are now considered “affordable” to the majority of buyers across the country.

The results of a study were published in the Wall Street Journal.

During the boom, lax lending and speculation pushed house-price inflation far beyond the modest rise in household income. Nationally, the ratio of home prices to annual household income reached a peak of 2.3 in late 2005. But by last September, it had fallen to 1.6, matching the lowest level in the 35 years the data have been collected and well below the historical average of 1.9 between 1989 and 2003.

In fact, 47 of 74 housing markets (two-thirds) are considered to be affordable, using this criteria.

“Based on incomes, this is as affordable as it gets,” said Mark Zandi, chief economist at Moody’s Analytics. “If you can get a loan, these are pretty good times to buy.”

Prices are expected to continue to soften in many of these markets during the next year. Whether or not interest rates will also stay low is an open question, meaning for some, it’s better to buy now versus later.

Unfortunately, the Boston metropolitan area was not mentioned specifically in the article. Based on other information available, my guess is that Boston is at the cusp of the “affordability” matrix, meaning prices remain stubbornly high. If the economy continues to improve, that could be bad news for those looking for bargains.

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