Has the Housing Market Hit Bottom?

Many people are trying to call this the bottom of the housing market. While the loudest voices may be those with self-serving interests (namely, realtor groups), there is some real optimism creeping in.

The most recent Housing Opportunity Index – released by the National Association of Homebuilders and Wells Fargo Bank – shows that almost 73 percent of homes sold in the first quarter of this year were “affordable.” In order to qualify as “affordable,” the total costs of a home (mortgage, taxes, etc.) must not exceed 28 percent of the median family income (currently $64,000).

A few factors contributed to this jump in affordability, and it is a bit of a good news/bad news situation.

Plummeting home prices are a major factor in affordability. Unfortunately, the recent drop in prices is primarily due to foreclosures, which means that someone had to lose their home for it to become affordable for someone else. And until foreclosures slow down, prices won’t stabilize.

Another factor is record low interest rates, which hovered near 5 percent for a 30-year fixed loan at the end of the first quarter. This is good for individuals who qualify for those loans, but many who need a lower rate to be able to stay in their homes don’t qualify.

I think the housing market will find its true bottom by the end of the year, when the Obama administration does something to tackle the last roadblock: the vast number of homeowners who are currently underwater.

While there are still obstacles in the housing market, it seems like now is a great time to buy. Sure, prices may come down a little more, but the drastic drops appear to be behind us (and trying to time any market perfectly never works). If you find a home you like, at a price you like, don’t second-guess yourself. Interest rates won’t stay this low forever, and neither will prices.

And if you are looking for the country’s most affordable large city, check out Indianapolis. It has topped the list for the last 15 quarters.

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