Affordable homes draw buyers to the market

05.19.09
By Sarah Beldo

With favorable home prices, low interest rates and the chance to claim a tax credit, now could be the perfect time for first-time homebuyers to take the plunge and enter the housing market.

According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, housing affordability across the country rose by 10 percentage points in the first three months of the year.

This means housing affordability is at its highest level since the index began in 1991, the report said. More than 72 percent of all new and existing homes sold in the first quarter of 2009 met these standards.

In comparison, only 54 percent of houses sold during the first three months of 2008 were considered affordable.

Commenting on the findings, the NAHB said there are a number of positive factors that could make the current housing market attractive to buyers who want to make the most of their money.

"Underlying the increase in affordability are lower home prices and record-low interest rates," explained NAHB chairman Joe Robson. "Combined with the $8,000 federal tax credit for first-time homebuyers, consumers are beginning to return to the marketplace."

In order for a house to meet the standard for affordability, a family earning the U.S. median income of $64,000 must be able to purchase it without spending more than 28 percent of their salary on housing.

This year, for the 15th quarter in a row, Indianapolis took the top spot as the most affordable major housing market in the U.S. Nearly 95 percent of homes sold were affordable to residents earning the area's median income.

First-time buyers who are looking to enter the market should be prepared to meet lenders' high standards before they can obtain a mortgage. These days, the minimum credit score required is typically higher than it has been in recent years, while lenders are also asking for larger down payments.

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Lower home prices and record-low interest rates attracting first-time homebuyers.