Analyst: Affordability High Despite Rising Prices, Interest Rates

Even with home prices marching ever upward and mortgage rates bouncing back more than a full percentage point over last year, ""Capital Economics'"":https://www.capitaleconomics.com/ Paul Diggle insists housing affordability is still as good as most other experts say it is--if not better.

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In the firm's latest US Housing Market Focus, Diggle notes that long-term trends show prices are up 15 percent below their trend level, with the ratio of Case-Shiller prices to disposal incomes per capital pointing to housing being about 16 percent below fair value.

However, when comparing median household income to median home prices, Diggle says housing looks ""no better than fairly valued.""

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Explaining that affordability measures ""the burden of mortgage payments relative to income,"" Diggle notes that the latest data from the National Association of Realtors shows that a family earning the median income has 178 percent of the income necessary to qualify for a mortgage on a median-priced home. At the same time, typical mortgage payments currently average 17 percent of median income, up from recent months but below the long-run average of 22 percent.

Even with first-time buyers earning less on average and paying more of their income for their starter homes, ""these metrics are still considerably more favourable than historical norms.""

""Measuring housing valuations and affordability is not an exact science. Nevertheless, after calculating valuations and affordability in a number of different ways, a picture emerges of housing being at worst fairly valued and at best undervalued,"" Diggle said. ""That suggests that concerns about another US house price bubble are premature.""

However, he remarked, while valuations and affordability don't represent a major barrier for the typical buyer, ""extremely tight mortgage credit is a significant constraint preventing mortgage-dependent buyers playing a larger role in the recovery.""