As Home Prices Rebound, Home Affordability Slides

Wednesday, 12 Dec 2012 11:00 AM

By Dan Weil

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While many are cheering the housing market’s rebound, it does have a downside — homes are becoming less affordable, reversing a six-year trend.

The National Association of Realtors Composite Housing Affordability Index fell 1.2 percent in October from a year earlier, though it was up 1.4 percent from September.

"The era of increasing homeownership affordability in big cities is ending," analysts from real estate research firm Trulia wrote in a recent report obtained by CNBC.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

"The price recovery is strongest in the largest metros, and price gains have now surpassed rent gains in the largest 25 rental markets,” says Trulia's Jed Kolko.

The S&P/Case-Shiller index of home prices in 20 major cities soared 3 percent in September from a year earlier, the biggest gain in more than two years.

Affordability also is being hit by an increase in guarantee fees charged to lenders by Fannie Mae and Freddie Mac for bundling and selling mortgages. The fees now stand at a peak of 46 basis points, according to Capital Economics data cited by CNBC.

Most experts see the home price increase in positive terms.

“We’ve had several years now for the housing recovery to sort of catch its feet, and it looks like we are starting to crawl out of the giant hole that we dug into from the financial crisis,” Sean Incremona, senior economist at 4Cast, told Bloomberg.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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