Getting the most out of your money.

From some news headlines it may sound like the US housing market in still in a slump. However, when you look at the numbers this is actually the greatest time to invest in real estate. Homes are now at least the most affordable they have been since 1969, when data on the various factors that determine affordability began to be recorded, and probably the most affordable we have ever seen. How is home affordability calculated and how can these claims be backed up?

There are three factors that come into play to determine housing affordability; house prices, interest rates and income levels. Let’s take a brief look at each one and see why homes are more affordable than ever before.

It is no secret that US home prices are now at incredible lows. While Christopher Thornberg the founding principal of Beacon Economics who publishes the Beacon Economics Housing Affordability Index said in a recent news article that "Nationwide, prices are down approximately 25 percent from their peak, and mortgage financing rates are at all-time lows.", many Americans have no doubt seen prices drop much lower than this in their neighborhoods. There are certainly many areas in the country where homes are selling for 30-50% of what they were valued at 5 years ago. Home values may bounce around a little in the next few months. However, one thing that everyone seems to be in agreement on is that we are definitely at the bottom of the market now and good things are on the horizon. Even if it takes more major moves by the government in the next few months leading up to the general election.

The second factor for home affordability is mortgage interest rates. There is no doubt that interest rates on home loans are at incredible lows and are compounding the buying power of those looking to invest in real estate or purchase a new home for themselves. According to the leading compiler of US mortgage rate data at the time of writing this article 30 year fixed rate loans are averaging 4.32%. Interest rates on 15 year fixed rate loans are averaging an unbelievable 3.76% and of course adjustable rate home loans can be found with even lower interest rates. These rates are just a fraction of what many homeowners are currently paying on mortgage loans that they took out at the height of the last real estate boom.

Income levels obviously also play a big role in housing affordability. Of course without income it doesn’t matter how low home prices are. While the news headlines may have recently highlighted some of the ways the economy is still weak income in the United States, it is still as a whole at great levels. There is no question that Americans are still some of the highest paid individuals on the planet and that the cost of living is extremely low compared to many other developed countries. In fact the data on the housing affordability index just released shows that the average American family needs just 16.9% of it’s monthly income to cover the payment on an average sized home. Now, compare that with several years ago when mortgage lenders were under increasing pressure to raise debt-to-income guidelines for home loans above 55%!

When you look at the hard numbers it is clear that not only is housing affordability better than it has been in at least 40 years but it could best the best time for families, individuals and investors to buy a home in their lifetimes. Things will improve slowly, but this also means that home prices and interest rates will also rise. Purchasing a home now could easily be the best investment Americans and those investing in the US could ever make.