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Housing is Now Cheap -- Or is It?

  • December 30th 2009

by Mark Wellborn

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Housing is Now Cheap -- Or is It?: Figure 1

Brett Arends, The Wall Street Journal columnist who we believe does a great job of explaining financial issues in layman’s terms, declared today that “housing is officially cheap,” an assertion that will likely have as many detractors as supporters.

Arends reasoning, on the heels of the latest Case-Shiller numbers that were released recently, was two-fold:

  1. Real estate prices in the Case-Shiller 10-city index have now fallen 30 percent from their 2005 peak.
  2. Mortgage rates have dropped significantly. “In 2006 you had to pay an average of about 6.4 percent on a 30-year fixed loan, according to the Federal Reserve. Right now you can get deals for about 5 percent,” Arends writes.

Based on these two factors, and some additional research, Arends states that “buying a home now is as cheap as it was in the mid-1990s, when houses were an absolute steal,” with the caveat that affordability is very localized.

There are, of course, those who take issues with Arends’ assertion. The website Calculated Risk claims that it is misleading because it is largely based on interest rates without taking other factors into consideration. The site notes: “House prices are not currently “cheap”. They just aren’t outrageously expensive nationally anymore.”

What do you think? Have prices come down so far that they can actually be considered cheap? Let us know in the comments.

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This article originally published at http://dc.urbanturf.production.logicbrush.com/articles/blog/housing_is_now_cheap_or_is_it/1641.

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