There is much rejoicing over the rise in the Case Schiller 20 city composite home price index for a second consecutive month. Consumer confidence is up too. Also the record 7.2% increase in home resales, highest rate of increase in the past 10 years, has turned many heads and inspired speculation that the market has finally bottomed. While we are happy for any good news from the Case Schiller index, we also know that with unemployment still rising (here are numbers for Washington) and with record foreclosure rates, the perception of a price rise is more probably a change in the distribution of sales rather than a rise in price across the board. Much as we do in our affordability calculation below, here is an analysis from Calculated Risk that looks at current house prices in several different ways. About a third of current residential sales are from foreclosures. With the $8,000 first time buyer tax credit set to expire the end of October, buyers certainly have an incentive to lock in purchases now. Although there is a proposal in Congress to increase the tax credit to $15,000 and have it apply to all purchases, it’s more likely that Congress will extend the current program.
 
13 of every hundred mortgages have either missed payments or are in foreclosure. A new graph from the New York Fed shows that at the end of the first quarter in Kitsap County, 2.83 percent of mortgages are 90 plus days delinquent (note this is different than having just missed a payment, though the literature shows that more people missing payments are now unable to recover than before), and that 15.58 percent of subprime mortgages and 14.76% of alt-A mortgages (stated income) were 90 plus days overdue. Based on the national data, these numbers are even higher now, continuing to put downward pressure on prices as distressed homeowners try to do short sales or properties are resold as bank owned.

Each month we look at affordability as a means of seeing how close our market is to returning to its pre bubble conditions. The Washington Center for Real Estate Research provides local affordability calculations that we can use to check on housing affordability using current median prices and interest rates. We assume that a buyer making the median family income puts 20% down on the median priced home and obtains a 30 year fixed rate mortgage. We assume that a first time buyer making 70% of the median income puts 20% down on a house priced at 80% of the median and obtains a 30 year fixed rate mortgage. We assume that both buyers can afford to spend a maximum of 25% of their monthly income on the principal plus interest of the loan. Using the annual averages of median price, median income, and average annual 30 year fixed interest rate since 2003, we plot an affordability index equal to the maximum affordable payment divided by the actual payment. When the index is greater than 1, the loan is affordable to the typical buyer. When it is less than 1 some buyers cannot afford to purchase. Our numbers for 2009 are estimates using the latest monthly data for median prices and interest rates (2008 has been updated with average annual values), and an estimated median family income for 2008 and 2009. With interest rates falling from 5.44% last month to 5.33% in August for a typical 30 year fixed rate conforming loan and the median price rising a few percent in July to $251,500, affordability is still very good. Keeping in mind how median prices can be deceptive, you should be aware that the bulk of sales are concentrated below $400,000, with considerably fewer than normal in the higher price ranges. The affordability index fell to 1.21 in July from 1.23 in June. First time buyer affordability also fell to 1.06 from 1.07 last month. Affordability has been eroding for the past 5 months after peaking earlier in the year. Interest rates have remained low, so the perceived erosion is actually a reflection that a greater percentage of homes in the higher price ranges are now selling, causing the median (or middle) price among all closed sales to rise. That’s different than home prices rising across the board. Below is a  graph of the year-to-year changes in affordability and a second graph showing month-to-month affordability progress over the past year.

Year	2003	2004	2005	2006	2007	2008	2009
Annual Average interest rate	5.83	5.84	5.87	6.41	6.34	5.80	5.33
Median Income	$53,160	$53,923	$54,582	$58,304	$60,719	$65,000	$65,000
Median Price	$184000	$206900	$250000	$275000	$290343	$265000	$251500
Monthly payment	$867	$975	$1182.43	$1378	$1443	$1244	$1121
Affordable payment	$1,108	$1,123	$1,137	$1,215	$1,265	$1,354	$1,354
Affordability Index	1.28	1.15	0.96	0.88	0.88	1.09	1.21
1st time buyer payment	$693	$780	$946	$1102	$1155	$995	$897
1st time buyer affordable payment	$775	$786	$796	$850	$885	$948	$948
1st time buyer affordability index	1.12	1.01	0.84	0.77	0.77	.953	1.06

August's APR is 5.444% on a 30-Year and 5.078% on a 15-Year, both Conforming. July's rates were identical, 5.444% on a 30-Year and 5.078% on a 15-Year, both Conforming. If you qualify for FHA or VA loans (or the newly popular USDA loans), these programs have are attractive for low downpayment buyers, although we noted that APR for 30 yr fixed FHA is 5.516%, down from 6.245% last month. Limits for FHA and conventional conforming loans just went up with the stimulus bill signed earlier this year. FHA maximum is $475,000, and the conventional conforming limit has returned to $475,000. Lending programs for jumbo loans reportedly getting better, with the larger banks starting to come back to this market. A typical 30 year fixed jumbo APR (with total costs of the loan, not just the rate factored in) is 6.399% on one major bank web site - same as last month). Local credit unions and savings and loans may be able to beat this rate for some jumbo loans. To check the daily rate you can contact your lender or preview web sites such as this one - http://bankrate.com/ .