Talking Points Bulletin

The current decline in home values has one very bright spot: combined with relatively low mortgage interest rates, homes have reached their highest level of affordability in four years.

According to the National Association of Home Builders (NAHB), 20% of households in LA County can now afford the median price of a home. Compare this to 2% in 2005. The NAHB relates the cost of paying for a home, based on average home prices and mortgage rates, to the median household income.

While the increased affordability is no doubt fueling the rapid sale of bargain-priced foreclosures, primarily among first-time buyers and investors, it is also creating a lot of pent-up demand that will be experienced in the future.

Interest rates declined last week, with a 1/8% drop nearly across the board. Where all rates began the week of November 21.

The terrible fires of the past few days will probably have the same effect on local residential real estate as they have had in past occurences: reduced inventory and increased demand for housing will probably give values a short-term boost.

On another note, I personally don’t think the government will do much to directly assist homeowners who are facing foreclosure because helping out people in default will encourage others to get a break on their mortgage by going into default … therby raising the default rate. I think the market must settle itself in natural, Darwinian style. When the storm passes, as it always does, we will have a stronger and more affordable real estate market.

Interest rates didn’t change much last week, with the conforming 30-year fixed, jumbo 30-tear fixed, and FHA jumbo 30-year fixed remaining at the same levels. Where all rates began the week of November 17.