Political  Calculations

The WSJ's Real Time Economics blog recently caught our attention with the following headline: Why the Nation's Hot Housing Market Is Cooling Slightly.

After wiping down our monitor after our initial spit-take, we found it to be a fairly decent article, summarizing much of what we've observed and reported upon in the nation's housing industry months ago. But then, we had to wipe down our monitor again as we read the following section:

“One of the reasons that demand appears to be slowing is that the pace of previous home-price increases has negatively affected affordability,” Mr. Lawler said. “And some of the previous year-over-year gains were from depressed levels when there was a lot of distressed inventory on the market.”

Economists have differing opinions on the extent to which price increases have made homes less affordable for buyers. Interest rates are higher, with the rate for a 30-year fixed-rate mortgage now at 4.21%, up from 3.42% a year earlier, according to Freddie Mac. Mortgage-insurance fees also have increased.

However, the Realtors association argued Monday that homes remain affordable, noting that a buyer purchasing a home at the first-quarter median price with a 5% down payment would need an income of $44,200 to land a mortgage. With a 20% down payment, the necessary income is $37,200, the group said.

To understand why we needed to wipe down our monitor again, let's turn to Barry Ritholtz' classic unloading upon the lack of utility offered by the National Association of Realtor's Housing Affordability Index:

In the past, we have discussed how worthless the NAR’s Housing Affordability Index is. This weekend saw an odd column in Barron’s that was suckered in by the silliness of that index.

This suggests to me it is time to take another pass showing exactly why this index has so little value to anyone tracking housing values and affordability. let’s begin by going back to our 2008 analysis:


Political Calculations

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