The stagnant economy and massive liquidity actions from the Federal Reserve have driven interest rates to record lows. Freddie Mac, which has tracked residential mortgage loan rates since 1971, reported 30-year fixed loans this week at 3.31 percent while 15 year rates were 2.63 percent.
Combine record low interest rates with a 23 percent drop in housing values (and it was a 29 percent decline on average nationwide—but the housing market is improving) and you end up with phenomenal housing affordability in many markets. Housing affordability is a three-legged stool consisting of the cost of borrowing money (interest rates), home prices and corresponding incomes.
In ranking affordability, the National Association of Homebuilders (NAHB) and Wells Fargo have teamed up to produce the NAHB-Wells Fargo Housing Opportunity Index combining housing costs and wages. To read more about the index that dates back to 1991 click here.
That said, the top 10 cities in the NAHB-Wells Fargo Index are as follows:
In addition to the NAHB-Wells Fargo data, I added the percentage job growth of each location in the latest 12-months ending October 31, 2012. All but one of the top-10 in affordability had some level of job growth. For a baseline, the U.S. job growth rate in the same time was 1.48 percent.
In just a few years I believe that many will look back at this point in time and wish they had bought more real estate.