Affordability: Is it A Sign Of The Housing Bottom?

I’m hearing the word “affordability” a lot these days, increased affordability to be specific. The Realtors were hammering that particular positive during theirmonthly existing home salespresser this morning, and this week I received a note from a well-respected real estate consultant out on the west coast, John Burns:

“Housing affordability has improved dramatically in the last year, particularly in those markets where affordability was previously the most concerning,” Burns writes. Burns uses a Housing Cycle Barometer rating, a measure of the relationship between incomes and housing costs, for more than 380 metro areas in the nation.

“The number of markets that we designate as ‘Areas of Significant Affordability Concern’ – where the Barometer rating was 7/5 or higher (out of 10) – has fallen from 42 markets one year ago to only 3 markets today.”

Burns tells me he and his people are calling a bottom this month because the disconnect between demand and supply is no longer getting worse, and will get better from here. He says this is important because it dictates good investment strategies:

“The better capitalized builders and others with capital will begin picking up excellent land at very distressed prices very soon,” Burns tells me in an email. “This is exactly what they need to get their businesses back on track. Those builders without the capital will miss the opportunity.”

I think the affordability factor is the best news I’ve heard in this housing market in quite a while, but I worry about the supply and demand theory. The Realtors today reported that inventories of unsold homes rose yet again in April to an astounding 11-month supply.

Whether you like the NAR’s numbers or not, there are an awful lot of homes out there with no traffic, new and old, and foreclosures are only adding to the lot. I’m not ready to call a bottom, but with prices continuing to fall, and sales picking up in some particularly distressed markets, perhaps the bottom is at least near.