Aug 2011 12

An analysis of historic housing prices and 30-year mortgage loan rates proves that housing is affordable to more Massachusetts’ home-buyers than at any time in at least 20 years.

I plotted the Standard & Poors / Case-Shiller home price index data for every month and year from January 1987 to May 2011. A rough estimate of what homes were worth in the past, and as good as any data for an analysis of this sort.

Then, I used data from the HSH historic mortgage rates website to plot average 30-year fixed-rate mortgage loans for each month during the past 24 years.

In May 2011, the median single-family home sold in Massachusetts for $304,000, according to The Warren Group. Working backward using the S&P / Case-Shiller values, I was then able to estimate what a single-family home sold for in every other month, from 1987 to today. (Case-Shiller normalizes January 2000 to have a value of 100, with dates before and after that adjusted.) (Case-Shiller and The Warren Group use different data; The Warren Group is for all of Massachusetts, whereas Case-Shiller is the “metropolitan statistical area” around Boston. The Warren Group’s values are probably lower than Case-Shiller, since they use homes in western Massachusetts, whereas Case-Shiller is more eastern Massachusetts, plus as far north as New Hampshire.)

I pulled median household income data from the US Census Bureau. (None of my figures are adjusted for inflation, which makes sense, since your pay in 1990 had to buy a home in 1990 dollars.)

What does my analysis show?

In 1990, the median home sale was for $146,503. This equated to $1,026 per month in mortgage loan payments at a fixed-rate loan at 9.98%. The median household income was $36,952, so you’d pay 33.34% of your annual income on your loan (assuming a 20% down payment).

In 2000, the median home sale was for $201,351. This equated to $1,218 per month in mortgage loan payments at a fixed-rate loan at 8.32%. The median household income was $50,502(!), so you’d pay 28.94% of your annual income on your loan (assuming a 20% down payment).

In 2009, the median home sale was for $303,496. This equated to $1,425 per month in mortgage loan payments at a fixed-rate loan at 5.80%. The median household income was $64,057, so you’d pay 26.69% of your annual income on your loan (assuming a 20% down payment). (Unfortunately, I don’t have 2010 or 2011 median household income data.)

The key figure, obviously, is the interest rate. It’s come down from double-digits in the 1980′s. It’s at almost an historic low.

For those who are in the position to buy right now, it’s a golden opportunity to lock in the cost of housing for years into the future, for the cheapest amount possible in over two decades.

[...] “over-valued”; as a percentage of household income, taking out a $400k loan this year would cost you less than any time since at least [...]