Homes still affordable - really affordable

The bright side of the housing bust: Homebuying has not been this affordable in a generation.

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By Les Christie, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Homes continue to be more affordable than they have been in nearly two decades.

The typical American family, making the nation's median income of $64,000 a year, could afford to buy 72.3% of all homes sold in the United States during the second quarter, according a quarterly report from the National Association of Home Builders (NAHB) and Wells Fargo (WFC, Fortune 500).

That's off just a tad from the record 72.5% reached during the first three months of 2009, but up substantially from the second quarter of 2008 when only 55% of homes sold were affordable.

"The increase in affordability -- along with the $8,000 federal tax credit for home buyers -- is stimulating demand, particularly among young, first-time buyers," said NAHB Chairman Joe Robson, a homebuilder from Tulsa, Okla., in a prepared statement.

The NAHB judges a home to be affordable if a family making the metro area's median income could devote no more than 28% of their take-home pay toward housing costs.

The vast improvement this year is due to plunging prices and rock-bottom interest rates. The average U.S. home price has dropped more than 32% from its peak, which was set during the summer of 2006, according to the S&P/Case-Shiller Home Price index. And, for most of the three months mortgage rates were historically low, under 5% for a 30-year fixed-rate loan.

Long suffering sellers

The improved affordability comes, of course, at the expense of sellers. Real estate Web site Zillow reported that more than 30% of all homes sold during the three months ended June 30 went for less than what the sellers originally paid.

The longer they owned the home, the more likely they were to profit from the resale, but virtually anyone who bought within the past five years and sold during the quarter lost money on the deal, according to Stan Humphries, Zillow's vice president in charge of data and analytics.

Foreclosure factor

The heartbreak among home sellers is compounded by the foreclosure problem. Many of the homes on the market got there because families lost their homes to foreclosure.

Part of the reason that home prices have become so reasonable is the volume of REOs -- real estate speak for homes repossessed by banks -- has spiked. There were more than 87,000 repossessions in July, about triple the number of July 2007.

Foreclosed homes are often listed and sold at steep discounts to produce quick sales, according to Brad Geisen, founder of Foreclosure.com, which markets such properties.

"The big banks are finally pricing their properties to what people will pay for them," he said. "Foreclosure inventory is now selling at about the same rate it's coming in."

Most affordable cities

The older, industrial Midwest cities generally offer the best bargains. Indianapolis has led the NAHB's Housing Opportunity Index for 16 straight quarters. Nearly 95% of all homes sold there were affordable to those earning the area's median income of $68,100.

Other leaders were the Youngstown, Ohio, metro area, Detroit, Dayton, Ohio, and Grand Rapids, Mich.

The least affordable large metro areas were New York, where only 21% of homes sold were affordable, Honolulu, San Francisco,Los Angeles and Santa Ana, CalifTo top of page

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