This article from New Geography is a good look at actual home affordability in the volatile market for housing that is currently trying to regain its footing in America, and perhaps is doing so, at least in the Sacramento region according to this local report from the Bee.
An excerpt from New Geography.
“We just passed an era when the “American Dream” of home ownership was diminished as the growth of home prices outpaced income. From 2001 through 2006, home prices grew at an annual average of 6.85%, more than three times the growth rate for income.
“This divergence between income and housing costs has turned out to be a disaster, particularly for buyers at the lower end of the spectrum. In contrast, affluent buyers – those making over $120,000 – the bubble may still have been a boom, even if not quite as large as many had hoped for.
“For middle and working class people, the pressure on affordability was offset by historically low mortgage interest rates which fell from over 11 percent around the time of the 1987 Stock Market Crash to 6 percent in 2002. Yet if stable interest rates were beneficial to overall affordability, the artificially low interest rates promoted by the Federal Reserve may have created instability. By allowing people to increase their purchasing power to an extraordinary level, low mortgage interest rates fueled a rapid escalation in housing prices.”
An excerpt from the Bee.
"One bright note is that the (housing) sector that led the economy into this morass is about to turn the corner, perhaps as soon as this summer, and will start to lead us out," said Scott Anderson, senior economist at Wells Fargo & Co.
“It's still too early to declare real estate's revival. And others will argue forcefully that consumer debt, the collapse of esoteric global financial instruments and the abrupt and almost unprecedented freezing of credit have created an immense disaster far beyond real estate's reach.
“But 2008 could also be seen as the year Sacramento-area real estate began to show signs of stabilizing, and the idea that housing might help establish a foundation for the economy here is something experts are starting to debate. Prices and inventory are down and sales are up, even as foreclosures continue. Mortgage rates have fallen to their lowest levels in at least 37 years. The correction has been enormously painful, but there are believers who contend Sacramento will be among the first U.S. markets to recover.
“• Supply is down. It would take 3.9 months to sell today's nearly 11,000 listings in Sacramento County and West Sacramento. A year ago: 12.2 months.
“• Sales are up. After 37 months of declines in the region, something new began in April: eight months of year-over-year sales gains. Prices better match area salaries.
“• Conservative lending and safe loans are back. Nine in 10 California mortgages this year had fixed rates, according to the California Association of Realtors. At the height of the boom, two-thirds of all new mortgages in California were loans with adjustable rates. The new lending portends a stable base of homeowners.”