While home prices are at all-time highs, it's still less expensive to buy a home or condo now than it was to buy in the 1980s, according to the New York Times.
A sharp fall in mortgage rates since the early 1980's, a decline in mortgage fees and a rise in incomes have more than made up for rising house prices in almost every place outside of New York, Washington, Miami and along the coast in California. These often-overlooked changes are a major reason that most economists do not expect a broad drop in prices in 2006, even though many once-booming markets on the coasts have started weakening.
The long-term decline in housing costs also helps explain why the homeownership rate remains near a record of almost 69 percent, up from 65 percent a decade ago.
Nationwide, a family earning the median income - the exact middle of all incomes - would have to spend 22 percent of its pretax pay this year on mortgage payments to buy the median-priced house, according to an analysis by Moody's Economy.com, a research company.
The share has increased since 1998, when it hit a low of 17 percent before house prices began rising sharply in many places. Although the overall level has reached its highest point since 1989, it remains well below the levels of the early 1980's, when it topped 30 percent.
Florida's Tampa Bay area is still one of the nation's lowest priced areas, when compared to other major metro areas. Few areas are more affordable in comparison to what is offered here, and it is a bargain when compared to other coastal real estate markets, such as New York and Los Angeles, among others.
Elsewhere, families tend to spend far less on housing. In Dallas, the share of income needed to buy a typical house has fallen to 13 percent this year, from 14 percent in 1995 and 31 percent in 1980. In Tampa, it has dropped to 21 percent, from 26 percent in 1980. Even in New England, where the soaring prices of the last decades have frustrated many young families, house values have still not reached the heights of the early 1980's, when calculated as a share of income.
Of course, affordability doesn't stagnate forever, and with the likelihood of Fed fund rates increasing at least twice this year, the housing market's affordability level will likely trend closer to where it was in the 1980s: much less affordable. Bubble dreamers, I mean analysts, are likely to wake up seeing that their dreams, I mean analysis, has popped. In 2006 housing affordability will decrease due to rate increases, even if home prices decrease, and they will in some parts of the nation, while other areas will see slower appreciation than in the last few years.