We looked at the issue of home affordability as measured by the National Association of Realtors in July 2009. As always, the indices for both composite fixed/adjustable mortgages and fixed-rate mortgages (red columns, left-and right-hand charts, respectively) are a lagging function of existing home sales (blue line, both charts). The NAR has not published a separate affordability index for adjustable-rate mortgages since November 2008; quelle dommage.
If the observed eleven-month lead time holds, we should see a decline in affordable during the window when the first-time homebuyer’s tax and the Federal Reserve’s expire. If the market is left to its own devices, affordability will recover not when financing costs fall or when subsidies intended for the buyer but in fact captured by the seller increase but rather when sale prices fall.
This will have the effect of maintaining high levels of mortgagor delinquency. As mortgage financing has remained a public affair via the open-ended backstopping of Fannie Mae and Freddie Mac and via the mortgage-backed securities on the Federal Reserve’s balance sheet, the housing overhang will remain a drag on economic expansion for the foreseeable future.