Realtors’ ‘Rosy’ Index Overstates Affordability: Chart of Day

July 20 (Bloomberg) -- A common measure of the affordability of homes for buyers is providing a too “rosy” assessment because of tighter credit conditions, according to Bank of America Corp. strategists. The CHART OF THE DAY shows the National Association of Realtors’ index soaring much higher than the previous record amid lower property prices and mortgage rates. Also shown is what might be a... [more]

July 20 (Bloomberg) -- A common measure of the affordability of homes for buyers is providing a too “rosy” assessment because of tighter credit conditions, according to Bank of America Corp. strategists. The CHART OF THE DAY shows the National Association of Realtors’ index soaring much higher than the previous record amid lower property prices and mortgage rates. Also shown is what might be a more-accurate reading, according to a July 17 report by Vipul Jain, Max Nissman and Ohmsatya Ravi. “Despite the rosy appearance of affordability provided by the index,” its “relevance” has been lessened in recent years, the New York-based mortgage-bond analysts wrote. Tougher lending standards mean that instead of coming with the average interest rates on typical loans used to calculate the index, about half of new mortgages for home purchases are going to borrowers who need to turn to debt insured by the Federal Housing Administration, they said. FHA loans allow for down payments as low as 3.5 percent, and the agency doesn’t have credit-score requirements. Insurance premiums required on FHA loans help create financing costs on the debt more than a percentage point higher than available on conventional mortgages, according to the report, which said the FHA share of home-purchase loans has climbed from about 10 percent. “It’s like seeking admission to a prestigious, free university,” the strategist wrote. “For those who can get in, education is cheap, but who can get in?” http://www.bloomberg.com/apps/news?pid=20601109&sid=axuHep7QFbEs The NAR lie? NAH! [less]