October 11, 2010

Home Affordability Is Highest in 40 Years: Beacon Economics

Overall, Beacon's home affordability index has remained below 20% for the past 21 months.

In August, U.S. homes were at their most affordable level since data became available in 1969, according to a new index launched by Beacon Economics, a Los Angeles-based macroeconomic forecaster.

The August estimate showed that the cost of home ownership, including mortgage interest plus principal payments after a 20% down payment, fell to 16.9% from 17.1% in July. Overall, the Beacon Economics home affordability index has remained below 20% for the past 21 months.

“Home affordability has reached an historic high,” said Beacon Economics Founding Principal Christopher Thornberg in a statement. “Nationwide, prices are down approximately 25% from their peak, and mortgage financing rates are at all-time lows.”

Thornberg’s assessment was bullish for the economy. The high level of affordability is likely to drive demand and reduce the stock of excess inventory, ultimately resulting in the need for new housing, a rise in prices, and a pickup in new construction, according to Thornberg.

“While prices may fluctuate modestly over the next several months, we believe the worst of the housing crisis is behind us,” said Beacon Economics Research Manager Jordan Levine in a statement. “We expect prices to stabilize around current levels and likely be higher in the next 12 months.”

Beacon Economics developed the home affordability index based on the percentage of income an average family would need in order to make mortgage payments on an average priced home.

Read about the National Association of Realtors’ report on existing-home sales in August on AdvisorOne.com.

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