In the first week of March 2011, the Federal Reserve released the Beige Book, a compilation of economic trends across the country, with the comment that the economy is expanding at a “modest to moderate pace.”
But a 20% rise in gasoline prices since January has dampened consumer confidence. Consumer sentiment retreated 12.9% in March, according to a University of Michigan consumer survey, largely due to the Expectations Index which fell 19.1% to 57.9.
Yet out of this doom and gloom, the index for home buying conditions rose, not fell.
Approximately 78% of survey respondents believe that home buying conditions are good – the highest level since May 2009, when sentiment rode high on the euphoria generated by government-sponsored first-time homebuyer tax credits.
With tax credits a distant memory, consumers are seeing that housing is a bargain.
Citing low prices (63%) and low interest rates (41%), the respondents countered the relatively low sales figures cited by the National Association of Home Builders in February, when sales hit lows not seen for decades.
Affordability seems to be the key to optimism in housing. According to the National Association of REALTORS® (NAR), median home prices nationwide have returned to where they were in 2002.
In February, 2011, the median price of a home in the U.S. was $157,000 and the mortgage interest rate averaged 4.91% for a benchmark 30-year, fixed-rate loan. Based on a 25% qualifying ratio for monthly housing expense to gross monthly income, and assuming a 20% down payment, the monthly principal and interest payment would be $667, or 13% of qualifying income on a median family income of $61,566, says the Housing Affordability Index.
That may explain why pending home sales were up 2.1% in February 2011 , following a 5.1% decline in January.
The NAR expects home sales volume to rise anywhere from 5% to 10% in 2011 as the economy improves.
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