Drop in mortgage rates leads to jump in affordability

Drop in mortgage rates leads to jump in affordability

Minneapolis, Minnesota (December 10, 2008) – According to the Minneapolis Area Association of REALTORS®
(MAAR) based on data from the Regional Multiple Listing Service of Minnesota, Inc., a combination of substantial
declines in mortgage rates and the continued downward movement of home prices is leading to an unusually
attractive affordability environment.
Mortgage rates declined well into the 5 percent range
in the last month—the best rates of 2008 and the most
attractive since 2003. Add November’s tantalizingly
low median sales price of $175,000—down 19.2
percent from the same time last year and the lowest
November showing since 2001—and you have
extremely healthy affordability.

It is absolutely ‘go time’ for anyone interested in
making an affordable home purchase,”said Kevin
Knudsen, MAAR President. “The current combination
of low prices and low rates is unprecedented.”

MAAR’s Housing Affordability Index (HAI) jumped 19 points in the last month, and currently sits at 180. This is up
27.7 percent from last December’s mark of 141 and is the highest recorded HAI since we began tracking the data in
1990.
Lender-mediated home sales, which accounted for 53.5 percent of pending sales and 47.3 percent of closed sales,
posted a November median price of $130,881. This is a drop of $5,000 from last month and a decline of 20.7
percent from last year. Traditional properties, which exclude foreclosures and short sales, had a November median
sales price of $225,420, a decrease of 2.0 percent from last year.
The stark differences in home prices between the lender-mediated market and the traditional sales market has led
to two very different market segments, each comprising roughly half of total market activity. Foreclosure and short
sale prices are falling fast as banks aggressively price their homes, while the traditional market is more effectively
maintaining its value as buyers appear willing to pay a fair-market price for “turnkey” properties that are closer to
move-in ready. The one thing each market segment has in common is a large increase in affordability thanks to the
recent drop in mortgage rates.
“Buyers are being rewarded by market conditions that have continued in their favor all year,” said MAAR President-
Elect, Steve Havig. “Mortgage rates haven’t been this good in five years.”