Having plunged more than 25% from their peaks of 2006, home prices are now more affordable than they’ve been at any time in at least 23 years.
The average home now costs 2.8 times average household incomes — down from its bubble high of about four times incomes. You have to go back to 1986 before you will find median home prices lower relative to median household incomes than they are today.
What’s more, interest rates — even more important to homebuyers than prices — are much lower today than they were in the mid-1980s. According to the Federal Housing Finance Board, effective rates on all homes averaged a thumping 10.2% in 1986. Today, they’re less than half that much.
This does not necessarily mean that housing prices have found a floor. Indeed, in view of a number of factors both real and psychological, the end of the price decline may still be some months away.
Read Irwin Kellner’s full article “The Price is Right” in MarketWatch (April 14, 2009).