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Let's talk about housing this week. This is an industry that has been hurt significantly over the last twelve months. The real estate affordability index is at a six year low, which means that home purchases are more affordable now than in 2003. This index takes into consideration the median price of homes as well as the current borrowing rate. New family home sales are one fourth of the levels that they were in 2003. One fourth! That means that there are a lot more homes on the market now than there were then or even one year ago. The median price of a home has declined almost 18% since its high in 2005.
The drastic reduction in home prices has attracted enough buyers to start working on the excessive inventory that has been weighing down the market. At the end of April, there was an estimated 10.1 months' supply of new homes for sale. Down from the 12.4 months of supply on the market in January.
Housing is critical to economic growth. Housing sales mean more jobs; more jobs mean a stronger economy. Real estate appears to be a good investment due to this severe contraction. Homes are still a good long-term investment. Now is the time to buy because of price and interest rates. Certainly the $8,000 tax credit recently approved by Congress will stimulate home sales for first-time home buyers as we lead into the summer busy season for residential real estate sales. Do we expect another housing boom? Not yet! Expect a gradual increase in activity brought on by lower prices, lower mortgage rates, and tax incentives.