With all the negative news about the real estate market (rising foreclosures! home sales falling!), it could be tempting to delay all real estate transactions until the dust from the economic fallout has settled.

But by then it might be too late to take advantage of what some are calling the best buyer’s market in history. Some consumers, in fact, are actively choosing to look beyond the negative news, because the prices are too good to pass up.

This was the case for a Pittsburgh couple quoted in an article this week from SmartMoney. Despite skepticism from their friends, they sold their existing house and traded up to their 4,500-square-foot dream home.

The situation of the Pittsburgh couple is also occurring here. My wife, who is also a REALTOR®, has recently put on the market the home of a Utah couple who are interested in trading up because prices and interest rates are so good. Even though they will likely lose some money on the sale of their existing residence, they will more than make up for it by buying a home they never could have afforded when they bought their current house. Plus, they will trade in their more than 6 percent interest rate for one closer to 4.5 percent.

Indeed, the unique combination of low home prices and rock-bottom interest rates has created a scenario that is too good to pass up. According to most, if not all, affordability indices, the cost of buying a home is the lowest it’s been in years.

PMI Group, a company that provides insurance to protect lenders in the event of borrower default, says homes are more affordable than they were in the 1990s. Using 1995 as a baseline, a score greater than 100 means homes are more affordable, and a score of less than 100 means homes are less affordable than they were during that period. According to PMI’s most recent data from the second quarter, the Salt Lake metro area had a score of about 137, meaning affordability has increased substantially.

Another index from the National Association of Home Builders and Wells Fargo also illustrates the improved affordability conditions. According to the index, about 73 percent of the homes sold in the second quarter were affordable to families making the area’s median income. That’s greatly improved from the boom days of 2006 and 2007 when this number was in the 30 percent range.

Our own index at the Utah Association of REALTOR®s shows that a Utah family making the median income has 144 percent of the income necessary to qualify for the median priced home using a 20 percent down, 30-year fixed-rate mortgage. During the January-to-September period in 2008, the score was 104, which means families were close to not being able to afford the median-priced home. Clearly, today’s conditions are vastly superior for buyers.

Of course, the SmartMoney article mentions that despite improved affordability, buying may not be the right move if home prices are still headed significantly lower. In Las Vegas, for example, PMI Group says there is nearly a 100 percent chance home prices will be lower in two years. Other risky areas are Miami, Jacksonville, Fla., Phoenix and Los Angeles, which according to PMI Group also have a nearly 100 percent chance of lower home prices over the next couple years.

For the Salt Lake area, PMI Group says there is about a 50-50 chance home prices will be lower two years from now, similar to its forecast for Washington, D.C. and Dallas. Although this is not as good as the company’s forecast for areas in the Heartland, which have a less than 30 percent chance of falling prices, smart buyers are looking at all the factors before they make their decision.

This includes analyzing inventory trends in their area, the forecast for interest rates, local economic conditions and other factors that affect home prices. That’s because they know if they buy smart, in the right areas and at the right price, their chances for a return on investment are high.

If you’re thinking about taking advantage of today’s low home prices, contact a local REALTOR® to learn more about the housing conditions in your particular area and what you can do to help protect the value of your home if you do decide to buy.


By Lerron Little, CRS, GRI
Appeared in the Salt Lake Tribune and Deseret News November 20, 2010