Consumers don’t find U.S. housing so affordable

Record-low mortgage rates and falling home prices have many experts saying U.S. housing is more affordable than ever. But home sales have only recently begun picking up and a new report from mortgage consulting firm Andrew Davison & Company cited by the Wall Street Journal explains the reason: housing is actually less affordable than it was during the boom.

While many analysts solely examine housing prices, which have fallen to their lowest levels since 2003, and mortgage rates, which have repeatedly set new lows in recent months, they aren’t considering the total cost of buying a home, the study said. Tight lending standards, and the elimination of certain affordable loan products, mean borrowers have to put more down to get a loan.

“Home affordability needs to be considered in light of the full financing package,” said Andrew Davidson. “During the bubble the low all-in cost of mortgage financing allowed borrowers to purchase homes, even at inflated prices.”

They found that weaker down-payment requirements during the boom reduced borrower costs by 15 percent, but tighter standards since the bust have raised borrower costs by 22 percent. Today, loan payments comprise just half of the total cost of ownership, and the all-in cost of a home purchase has risen to 9 percent of its value from 7 percent in 2006. [WSJ]