Housing is cheap and can be an extremely attractive investment opportunity!

Dennis Norman, St Louis REALTOR - Investing in Real EstateBetween interest rates falling to record lows and home prices falling back to levels from 8 years ago, the housing market is starting to look like a very attractive investment opportunity.

One of my favorite companies that produce a home price index and monitor the market is RadarLogic and their RPX Composite Price Index. They published some data to illustrate just how attractive housing has become as an investment (granted, they are trying to stir up interest in their new RPX Futures you can invest in, but the data I think supports investing in residential real estate as well.)

Home Prices RPX Composite

Source: Radar Logic and the Federal Housing Finance Agency

Highlights from the RPX report:

  • The RPX Composite Price, which tracks housing values in 25 major US metropolitan areas, has fallen 33 percent from its peak in June 2007.
  • In 2011, the Composite fell to its lowest levels in eight years, erasing the appreciation during the frothiest years of the housing boom.
  • Had the RPX Composite risen at 4.7 percent per annum starting in 2000 (the long-term rate of home price appreciation, it would be $203 today, or 8 percent higher than it actually is.

 

 

Housing Price-to-Income Ratio

Source: Radar Logic and the U.S. Census Bureau

A dollar of income goes further toward buying a home today than in any year since 2002.

 

  • Housing values increased faster than incomes from 2000 to 2005,reducing affordability.
  • Since 2005, housing prices have dropped faster than incomes, making purchasing a home more affordable.

 

 

 

 

 

Housing Price-to-Rent Ratio

Source: Radar Logic and the Bureau of Labor Statistics

Relative to the cost of renting, owning a home is the most affordable it has been in ten years.

 

  • From 2001 to 2006, the cost of purchasing a home increased relative to the cost of renting.
  • Since 2006, purchasing a home has become more affordable relative to renting.
  • In 2011, the price-to-rent ratio fell to 2001 levels.

 

 

 

 

30-Year Conventional Mortgage Rate

Source: Board of Governors of the Federal Reserve System

Mortgage rates are at historically low levels and are likely to stay there for some time.

 

  • As of August 2011, the average 30-Year Conventional Mortgage Rate was 4.27 percent, according to the Federal Reserve. That is the second-lowest rate on record, after 4.23 percent in November 2010.
  • The Federal Reserve recently took measures to reduce longer-term interest rates. In light of these measures, mortgage rates are likely to remain at or near record lows for the foreseeable future.

 

 

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