Study Refutes Notion of Record-High Home Affordability

A new study concludes that housing affordability hasn’t changed much, despite the huge drop in home prices since the housing market collapsed four years and record low mortgage interest rates.
Affordability measures, such as loan-to-value (LTV) and the cost of taking out a loan, show that borrowers continue to pay about the same fraction of their incomes toward mortgages now as they did during the peak of the housing bubble.
The research paper by Andrew Davidson & Co., a New York-based provider of mortgage analytics and consulting services, concludes that mortgage rates alone are not as strong a determinant of housing prices as some economists have suggested.
The down payment requirements, additional closing costs and the pricing of credit risk have to be taken into consideration, the study found.
“Home affordability needs to be considered in light of the full financing package. During the bubble, the low all-in cost of mortgage financing allowed borrowers to purchase homes, even at inflated home prices,” said Andrew Davidson, President of AD&Co.
This research paper is available at

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