Tuesday, December 23, 2008

NAHB / Wells Fargo Housing Opportunity Index for Q3 2008

(click to enlarge)

I like the National Association of Home Builders / Wells Fargo Housing Opportunity Index because it hasn't changed since they instituted it except to add more cities. When affordability got ultra-low they didn't change their methodology to try to redefine affordable. Now this may seem like a small thing to most, But the C.A.R. changed their methodology when affordability got low because they (apparently) couldn't exactly go around saying houses are unaffordable. To their credit NAHB/WF didn't change and as another hit to their credibility, C.A.R. did.

Ventura's lack of long history in the index and significant addition of new housing during the boom make it hard to make a judgement as to what historical affordability is. We can see in both charts that affordability is improving but still low. As we enter the recession affordability will still improve because fewer buyers will be able to buy between still high prices, job losses and continued mortgage credit tightening. Falling prices will eventually help as will lower interest rates but this is a tough environment to push volume. If loan modifications take hold and slow down motivated inventory coming on market the best we will get is low inventory and low sales with continued falling prices.

1 comment:

Anonymous said...

Very interesting...and I agree 100 percent with your last statement.

But you'd be hard pressed to make the average joe or current home owner understand that statement. They definitely equate loan modifications and low inventory with increasing price.

Supply/demand models are too simplistic to be applied to this situation IMO. Those are based on far too solid a foundation.