The latest housing data indicate home prices may be stabilizing, although butterflies over the economy could keep many potential homebuyers on the sidelines.
Home prices are closer to stabilizing today than at any time in the past nine years.
Based on the latest data, median selling prices for new and existing homes combined now equal 2.9 times median household incomes, nationwide. This is exactly the ratio that prevailed during the halcyon days of the 1980s, when sales and construction of housing were booming.
Three years ago, just before the housing bubble burst, this ratio was 4.5 times incomes.
Add in the fact that interest rates are much lower today than they were two decades ago and housing is even more affordable.
True, obtaining a home mortgage is tougher these days than it was in the 1980s. But I would bet that those borrowers who are willing to conform to the standards of the 1980s would not find it much harder to secure a mortgage loan today than they did back then.
For those of you who may be too young to remember, these standards included a down payment of 20% to 25%, several years' income-tax returns to document the household's income and, of course, a realistic appraisal of the home's worth.
By the way, the median income I use in calculating this ratio is last year's income. In other words, I am taking into account that we are in a severe recession and am assuming no growth in median income this year.
I am doing this even though median incomes have risen every year since 1970 — including the severe recession year of 1982. This should assuage the concerns of those who think I am being overly optimistic.
I am also aware that supply and demand are still out of balance. At current selling rates, inventories of unsold homes are still about twice as high as normal. And foreclosures may yet bring more homes onto the market, thus depressing prices even further.
However, the government's Homeowner Affordability & Stability Plan should help somewhat by lowering interest rates even further and by making conventional mortgage loans more available. This, along with the realization that many homes are now anywhere from 25% to 50% below their peaks, should get some buyers off the sidelines.
However, the number of prospective homebuyers will be limited by the concerns that people have over the state of the economy, their finances and their jobs.
That being the case, supply will continue to exceed demand and prices will continue to drop — unless Washington does one more thing: create and capitalize an agency that will offer to buy any home for sale at a price averaging no more than 2.9 times median income in each market. (Obviously, mansions will sell for more; cottages for less.)
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