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Reading the Tea Leaves on Home Prices


The real estate market continues to send out mixed signals on where home prices are going. Many rural and suburban areas never experienced a true real estate bubble, so prices haven't retreated very much.

The real estate market continues to send out mixed signals on where home prices are going. The closely watched Case-Schiller indexes recently showed that the rate of decline in home prices was slowing. On the flip side, a report from the National Association of Realtors showed an unexpected 16% slide in pending home sales in November. According to a Wall Street Journal article, however, these facts are blips on the radar screen. If you have good credit, a steady income, and can get a mortgage at the current low interest rates, the Journal article claims, now may be the time to buy.

A look at home prices and mortgage rates over the long term, the article states, shows that real estate is more affordable now than it has been in years. Using average home prices as reported by the US Census and factoring in average mortgage rates and weekly earnings, the article shows that real estate prices are at the level they were back in the early 1990s. And the annual cost of paying off a mortgage now stands at 19 weeks of average wages, as low as it was in the early 1970s.

The Journal article acknowledges that the figures are based on averages and not all areas fit the picture. Where huge price bubbles occurred, as in Miami and Las Vegas, the price collapse has been spectacular. In other areas, like New York and Boston, the declines aren’t as steep and bargains may be fewer. And many rural and suburban areas, which aren’t tracked by Case-Schiller, never experienced a true real estate bubble, so prices haven’t retreated very much, if at all.

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