We Remain Bullish

Provided by Blue Water Mortgage 

There are many reasons to remain bullish on housing; none more compelling than record affordability. The average middle-income family can now spend less than 25% of monthly income to buy a median-priced home, according to NAR lead economist Lawrence Yun, who adds that house payments as a percentage of income are at a record low.

Mortgage rates continue to contribute to Mr. Yun's affordability calculations. Last week, the benchmark 30-year fixed-rate mortgage fell 12 basis points to average 5.41%, the benchmark 15-year fixed-rate mortgage shed nine basis points to average 4.74%, and the benchmark 5/1 adjustable-rate mortgage dipped one basis point to average 4.94%, according to Bankrate's latest national survey. In other words, rates remain near historical lows.

How long they will remain there is anyone's guess. We have warned that it will be difficult for rates to sustain these low levels, and we still believe that, though they might be able to sustain them longer than we initially believed. Wage-induced inflation – a significant inflation source – remains a non-issue. In fact, worker productivity – the output of work per hour – increased at an annual rate of 6.6% during the second quarter, posting its best improvement since the summer of 2003.

When the economy picks up, and it will, rates will pick up as well, so it is unreasonable to expect to purchase a home for less than 25% of monthly income into perpetuity.