Affordability flirts with record lows

September 30, 2002

Study finds ratio of home price to income low, but a rise in interest will upset the balance

Inman News Features

Historically low interest rates and rising household incomes have contributed to housing affordability, despite the constant uphill jog of home prices, according to a new study released by the Milken Institute.

Housing affordability is near record lows based on the ratio of home prices to income, according to the study. The ratio of price to income stands at 4.14, close to the maximum ratio of 4.19 that was reached in 1988.

The ratio of mortgage payment to income for median-income households is also low at 32.4 percent, compared with 40.5 percent in 1988, according to the study.

The study notes that because interest rates are low, the delicate balance between prices, income and interest rates has been maintained, and if rates avoid a rise in the near future and income growth remains strong, the demand that supports the current prices can be expected to remain stable.

"Like a tripod, however, if one of the three dimensions - home prices, household income and mortgage interest rates - moves faster or opposite to the other two, it has the potential to upset the current balance of affordable housing in the U.S.," wrote the authors, Susanne Trimbath and Juan Montoya.

Copyright: Inman News Service

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