How Low Must Home Prices Go Before They Become “Affordable”?
Posted on December 18th, 2007 by pete
PORT WASHINGTON, N.Y. (MarketWatch) — Housing will revive when prices come down to the point where demand rises enough to reduce the huge supply of unsold homes now overhanging the market. That said, this point is a long way off…”Figure at least another 20% before families can afford to buy”
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After taking a look at the historical interest rates, it is pretty obvious that by not including that particular piece of data in your calculations, you’ve made a huge mistake. In order to find similar interest rates and costs, one would have to go back to the 1960s. Your mention of the 1970s for example had average interest rates from just under 8% to well over 10%. Of course, it helps to ignore the early 1980s when mortage rates topped 19%, but even from the mid 1980s up to the the early 1990s, rates were over 10%. From the mid 1990s, rates were at least a point higher than today.
But, let’s put it in more perspective…
In the 1970s, the rates were about double the current best rates. In the 1980s, almost triple. In the 1990s, they were again almost double. In the late 1990s and early 2000s, they were 30% - 50% higher…
When put into perspective, the affordability starts to look better for current pricing. Of course, I’ll go into more detail in a blog post on my blog… in the next few days when I can chart more of the info.