Affordable housing price index supports renewed interest in housing market

Affordable housing stock is one of most important components that will stimulate the housing crisis, and in turn, provide a solid foundation for economic recovery as well. The good news is recent indicators reveal that, with the decline in prices, housing is more affordable and that buyers are beginning to sign more sales contracts.

According to the National Association of Realtors® (NAR), two reports show homebuyers just may be taking baby steps back to the market. First, buying a home is becoming more affordable because of reduced prices and mortgage rates predominant in a distressed economy. The NAR’s Housing Affordability Index for December 2008 revealed the affordability index increased 10.9 percent to 158.8, the highest level since 1971. The higher the index number, the more affordable housing is for prospective, qualified buyers.

The second indication is the Pending Home Sales Index, which topped out at a healthy 87.7 in December 2008, an increase of 6.3 percent from November 2008. This index is the NAR standard to judge pending sales of existing homes, and showed the strongest gains here in the Midwest and South.

Lawrence Yun, NAR chief economist, says these gains are supported by buyers who are responding to lower home prices and mortgage interest rates. He adds that the “biggest gains were in areas with the biggest improvements in affordability.”

What do these tracking methods mean in real terms for consumers? Increasingly affordable housing brings more traffic into homes for sale, and that results in more sales. That’s good news for buyers, sellers and the economy. Simple as it sounds, reaching that formula during the past two years has been a challenge for the housing industry and families who want to buy property.

However, the housing market is still uncertain, and will continue to be so in the near future. While federal stimulus packages will offer some relief, just as important is the emotional aspect of home buying, when Americans will again feel secure about their purchasing decisions.