I think I’m more surprised that Bloomberg and BAC actually thought that the Realtors would provide an unbiased economic picture. They sell houses, it’s their job to make houses look like a good buy. When home prices were shooting skyward, they told us to ignore affordability, because we’d all be rich and giddy on equity. Now that prices are falling, and continue to fall, they focus our attention on “affordability”. Silly Bloomberg, it’s always a good time to buy.
A common measure of the affordability of homes for buyers is providing a too “rosy” assessment because of tighter credit conditions, according to Bank of America Corp. strategists.
“Despite the rosy appearance of affordability provided by the index,” its “relevance” has been lessened in recent years, the New York-based mortgage-bond analysts wrote.
Tougher lending standards mean that instead of coming with the average interest rates on typical loans used to calculate the index, about half of new mortgages for home purchases are going to borrowers who need to turn to debt insured by the Federal Housing Administration, they said. FHA loans allow for down payments as low as 3.5 percent, and the agency doesn’t have credit-score requirements.
Insurance premiums required on FHA loans help create financing costs on the debt more than a percentage point higher than available on conventional mortgages, according to the report, which said the FHA share of home-purchase loans has climbed from about 10 percent.
“It’s like seeking admission to a prestigious, free university,” the strategist wrote. “For those who can get in, education is cheap, but who can get in?”