On Monday it was announced that Homebuilder Sentiment rose again in April, marking the eight-straight month of increases. Yesterday the April Building Permit and Housing Start reports came out, and they both woefully missed estimates. Next week we will find out how Existing Home Sales and New Home Sales fared in April (as of writing this article, Existing Home Sales are expected to increase, New Home Sales are expected to stay flat from last month).

One thing is certain: many people are trying to call this the bottom of the housing market. While the loudest voices calling the bottom may be those with self-serving interests (namely Realtor groups), there is some real optimism creeping into  the housing market.

The most recent Housing Opportunity Index released by the National Association of Homebuilders and Wells Fargo Bank shows that almost 73 percent of homes sold in the first quarter of this year were ‘affordable’. In order to qualify as ‘affordable’, a family making the median national income ($64,000) must be able to devote no more than 28 percent of their income toward housing costs.

A few factors contributed to the jump in affordability, and it is a bit of good news/bad news.

Plummeting home prices are a large factor in affordability. Unfortunately, this drop in prices is primarily due to all the foreclosures, which means someone had to lose their home for it to become affordable for another. And until these foreclosures slow down, prices won’t stabilize.

Another factor making homes affordable are record low interest rates, which hovered near 5% for a 30-year fixed rate at the end of the first quarter. This is great for individuals who can qualify, but again, many homeowners who need the lower rates to stay in their homes can’t qualify for numerous reasons.

I think the housing market will find its true bottom sometime by the end of the year when the Obama administration does something to tackle the last major roadblock, which is the vast number of homeowners who are currently underwater. And if you are looking for the most affordable large city, check out Indianapolis. It has topped the list for the last 15 quarters.

Respectfully,

Christian Hill