It seems as if housing prices in the 1990’s and this decade have gone up dramatically more than incomes, making homeownership appear to be unaffordable.  But I recently attended a Long & Foster Education Day where Lawrence Yun, PhD, Chief Economist of the National Association of Realtors®, gave a presentation that shows that this may not be the case.  His statistics compared the monthly mortgage payment  for a median income household buying a median priced house in 1998 with 2008.  Since interest rates in 1998 were around 7% for a thirty year fixed rate mortgage, the monthly principal and interest payment would run about 19% of household income.  Think it would be much higher in 2008?  Think again.  With interest rates around 6% in 2008, the monthly principal and interest payment is also 19% of household income.  And with today’s rates running closer to 5%, the percentage should be even lower, making homeownership more affordable than it has been in decades. 

Dr. Yun also showed that if a recession is imminent, this is not necessarily a sign of home sales continuing to decline.  While the early 80’s recession did show deep cuts in home sales, the recession in the early 90’s showed only moderate cuts in home sales, the mid-1970’s recession showed little change and the early 2000’s recession was accompanied by a rise in home sales.