Why Some Buyers Are Still Waiting

Record-setting affordability isn't enough to get some buyers off the fence.

November 1, 2010

Amid all the news coverage about how the housing market is still in the tank, there’s one piece of news that seems to have escaped most commentators: Housing is at its most affordable level in decades. 

Because of record-low mortgage rates (the average 30-year fixed rate was at 4.3 percent in early October), the monthly mortgage payment for a median-priced home purchased with FHA-backed financing is $1,150, down from $1,658 in 2006, at the height of the boom. 

Of course, like all things real estate, affordability is local. On a national basis, though, now is clearly a good time to buy for those who are willing to stay within their budget. But the extent to which households take advantage of today’s conditions is influenced by a number of factors.

The first factor is the availability of credit. Even successful self-employed entrepreneurs are facing hurdles because they don’t have W-2 forms.

Second is market confidence. Although home values have largely stabilized in the past 18 months, some buyers believe prices are going to fall further. Unfortunately, as they hold off on purchases, their prophecy will become reality—inventories will grow and we’ll see downward pressure on prices.

The third factor is confidence in the overall economy. Slow economic growth leads to economic insecurity, even among those who have jobs.

Once consumers regain confidence and banks increase lending to sound individuals, buying activity should start to pick up. After July’s 27 percent drop in sales, the market has shown signs of healing; August existing-home sales were up almost 8 percent, and pending contracts suggest further gains.

It will take time before we can say the economy is back to normal, but in the meantime, high affordability and low mortgage rates will benefit those who are willing and able to purchase.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.

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