Housing is Now Cheap—Or is It?

by Mark Wellborn


Brett Arends, The Wall Street Journal columnist who we believe does a great job of explaining financial issues in layman’s terms, declared today that “housing is officially cheap,” an assertion that will likely have as many detractors as supporters.

Arends reasoning, on the heels of the latest Case-Shiller numbers that were released recently, was two-fold:

  1. Real estate prices in the Case-Shiller 10-city index have now fallen 30 percent from their 2005 peak.
  2. Mortgage rates have dropped significantly. “In 2006 you had to pay an average of about 6.4 percent on a 30-year fixed loan, according to the Federal Reserve. Right now you can get deals for about 5 percent,” Arends writes.

Based on these two factors, and some additional research, Arends states that “buying a home now is as cheap as it was in the mid-1990s, when houses were an absolute steal,” with the caveat that affordability is very localized.

There are, of course, those who take issues with Arends’ assertion. The website Calculated Risk claims that it is misleading because it is largely based on interest rates without taking other factors into consideration. The site notes: “House prices are not currently “cheap”. They just aren’t outrageously expensive nationally anymore.”

What do you think? Have prices come down so far that they can actually be considered cheap? Let us know in the comments.

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This article originally published at http://dc.urbanturf.com/articles/blog/housing_is_now_cheap_or_is_it/1641


  1. BillSeers said at 4:20 pm on Wednesday December 30, 2009:

    I agree with Arends. If you had the money, why wouldn’t you buy now given all the favorable indicators? The only issue in the DC area right now is a lack of inventory. Hopefully we will see a slew of new properties come on the market in January.

  1. HomeEconomics said at 10:40 am on Thursday December 31, 2009:

    I have a minor quibble with all of these articles and people proclaiming housing is cheap.

    Housing is expensive. It’s expensive relative to ALL valuation methods (Price to rent, Cap ratios, etc.). Anyone looking to buy now and sell soon will likely end up underwater just like those who bought in the boom years.

    Mortgages, however, are cheap. That is the reason now is a good time to buy in SOME areas (not many). I think that window closed this month though as rates are going back up and the Fed stops buying MBS in a few months. The government is subsidizing the mortgage market, so that is what gives the illusion that housing is cheap.

  1. Simon Landau said at 9:31 am on Monday January 4, 2010:

    Interesting posting.  There is no doubt that right now is a great time to buy if you have the financial stability to do so.  In addition, the extension on the homebuyer tax credit until April gives even more incentive to buy in the first quarter of the new year.  My guess is lot of properties will be moved in the next several months.

  1. Jim said at 4:36 pm on Friday February 5, 2010:

    Second drop coming.  What do you think will happen when the government can no longer keep the interest rates artifically low and ends the tax incentive?  There’s no upside to housing prices.

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