Home Prices are Not Affordable

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Wednesday, 12 June 2013 04:26

A NYT blog post on the impact of the rise in interest rates on the economy commented:

"Many real estate analysts say that homes are so affordable that even a considerable rise in interest rates would not do much to undermine the housing recovery, especially if the economy is growing at a healthy rate."

Actually homes are not especially affordable. Inflation adjusted house prices nationwide are more than 15 percent higher than their long-term trend. They are still down considerably from their bubble peaks, but that hardly means that prices are low. Of course even with the recent rise in mortgage interest rates, mortgage rates are still at extraordinarily low levels.