Affordability Increases Real Estate Activity

The latest survey from the National Association of Realtors reports that sales are up in four major regions of the U.S., and scattered markets are even experiencing bidding wars. Realtytimes.com reports, “Sales of single family homes, townhouses, condos, and co-ops surged by a little over 10 percent in October, and were 24 percent above where they were a year before.” Furthermore, closed transactions also have risen significantly: nearly 12% in the Northeast, 14.4% in the Midwest, 12.7% in the South, and 1.6% in the West.

Why the sudden increase in activity?

• Of course, the government tax credit has provided a powerful incentive for renters to enter the world of homeownership.
• Another factor is the record-breaking affordability of houses right now. Measured by comparing home prices with household incomes and mortgage interest rates, housing affordability is at its most favorable point since 1970.
• Many buyers want to take advantage of record-low interest rates, which are expected to spike in 2010. Rates on 30-year fixed loans recently dropped into the upper 4% range — much lower than last year’s 6.2% rates.

Several economists believe now is a good time to buy, as prices are flattening out and the housing inventory (now at a 7-month supply) is not far from a balanced market. It is likely that interest rates will rise in the spring if the Fed does indeed phase out its extensive investments in mortgage securities.

Tags: Affordability, Housing market, Residential Real Estate