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2009-04-17 17:50:39

The Key Word Is Affordability


The worse the economic news gets, the better opportunity there is for investment.

The National Association of REALTORS® recently reported that median selling prices are more affordable than they’ve been in over nine years. That’s following the recession brought on by the collapse of technology stocks.
Sound familiar? The collapse of the 2008 stock market where the S & P has lost half its value suggests to investors that housing isn’t so bad. While many have lost faith in housing, they may recognize, as they did nine years ago, that housing, with its practical shelter aspects and government tax subsidies, might be worth reconsideration.
Median home prices nationwide are not equal to 2.9 times household incomes, points out Irwin Kellner, CBSMarketwatch chief economist. Contrast that to the height of the housing boom three years ago when prices were 4.5 times incomes.
Add in higher incomes than three years ago, lower interest rates and higher inventory, and the playing field for homebuyers looks like a sure win.
The caveat is being able to get a mortgage loan, something the government is desperately trying to improve by buying stakes in banks such as Citigroup with taxpayer money, forcing higher conforming loan limits through mortgage insurers such as Fannie Mae and Freddie Mac, and attempting to stem the tide of foreclosures through forced renegotiations with mortgage holders and troubled homeowners.  
What’s changed isn’t the unavailability of mortgage money, but a return to sensible mortgage lending standards which only appear strict by 2002-2006 standards. Requirements of large down payments, documentable income, affordable debt ratios, and property appraisals not only protect the lender, they protect the borrower from experiencing the kind of personal financial crisis many are experiencing now. 
Fear of a further deterioration of the economy and job loss are still sidelining borrowers, as indicated by the National Association of REALTORS® January Pending Home Sales Index, now 6.4 percent lower than a year ago, and one-fifth lower than 2001 when the index was introduced.
However, that news was buoyed by the NAR’s Housing Affordability Index (HAI) which rose 13.6 points in January to a new record high of 166.8.
The NAR points out that the ratio of home prices, mortgage interest rates and family income is the best it’s been since 1970, when the Index was first introduced.
The HAI indicates that a median-income family earning $59,800, can afford a home costing $283400 with a 20 percent down payment and assuming that 25 percent of gross income can be devoted to mortgage principal and interest. That’s over $20,000 more house than the same buyers could afford a year ago.
Homebuyers who are on the sidelines don’t have to be idle. As incentives such as the $8,000 tax credit for first-time homebuyers sweeten the game, buyers will start to get off the bench. The smart ones are using this opportunity to prepare by cleaning up their credit, paying down debt, and thinking long and hard about what they really want in a home.
Ready buyers are watching the market, and they are poised to act when the time is right, and that time is fast approaching. The details of the stimulus package, bank cooperation, and other factors are being worked out now. 
Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."     


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