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Silver Lining Found: Affordability As Defined

While we are on the topic of suits [1], now we need to address the issue of silver linings.

One of the biggest rubs about housing during the run-up in prices was its lack of affordability. This key ingredient incentivized the creation of exotic loan products circa 2003-2004 and the proliferation of subprime and alt-A lending to keep loan volume moving as people dropped out of the hunt.

Yet right now, superficially – housing is the most affordable it has been in 40 years based on the relationship between:

The NYT’s Floyd Norris writes in his “Housing Market’s Upside: Affordability [2]

In the summer of 2005, when funny-money mortgages were readily available and helping to drive up home prices, the national median sales price of a home was almost eight times as much as the average per capita after-tax income of Americans. But by this January, with incomes up and home prices down sharply, that multiple had fallen to less than five.

That may be little comfort for many homeowners who owe more than their homes are now worth, but it does indicate that home prices have fallen far enough, at least in many areas, to make them affordable.“You have a big debt overhang problem, but you don’t have a house price problem anymore,” said Robert J. Barbera, the chief economist of ITG, an advisory firm.

However, Norris qualifies that personal income stats are flakey, housing prices vary greatly by region and don’t reflect debt and mortgage rates don’t reflect the significantly higher bar for underwriting standards.

Still, it’s encouraging and this is a something to build on. It’s all we have at the moment.




Silly TV alert: Happen to happen onto Morning Joe this morning while surfing – I continue to be amazed how many don’t seem to understand the difference between Banks and Investment Banks. Guest Mike Barnacle had to actually explain to the co-host who didn’t seem to understand the difference. Good grief. Let’s just lump everyone in the same pile and fix ’em the same way.