Home prices and mortgage rates are at historical lows, which makes homes most affordable. In fact, the Housing Affordability Index of the National Association of Realtors scaled a record high mark in October - 184.2 (see Chart 1). Historically, readings above 120 have been viewed as a seller's market. The chain of economic events of the past three years has modified this perception and the housing market is currently a buyer's market. However, buyers do not have the wherewithal to take advantage of the sweet spot in the housing market with affordable homes and low mortgage rates.

Speaking about buyer's market, the Pending Home Sales Index (PHSI) of the National Association of Realtors rose 10.4% in October to 89.3. The PHSI leads actual sales of existing homes by one-two months. Sales of existing homes fell in October after recording gains in August and September. Based on the PHSI, sales of existing homes should post a gain in November/December months. The October 2010 reading of the index is 20.5% below the peak mark set in October 2009; the index got an extra boost in October 2009 from the first-time homebuyer credit program which was originally set to expire on November 30, 2009.

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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