Housing is cheap

According to the Economist, homes are inexpensive in America, when compared to what it would cost to rent, instead.

A more striking finding is that America’s housing bust has taken prices back to their long-run average value against rents. Based on the Case-Shiller national index, American house prices had fallen to 3% below their fair value by the third quarter of 2009, well down from their inflated values at the start of 2006.

However, that’s not the only measure of home price values, of course.

Another index from the Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, tells a different story. On that basis America’s house price-to-rents ratio is still some 14% above its average. But that measure may not fully capture how far values have fallen, as it excludes homes that were paid for with subprime mortgages, for which fire sales are more common.

The results of the magazine’s analysis is of limited use, of course, because its data is too broad to be of much use. While home prices in the “United States” may be below comparable rental prices, the local real estate markets in America are so different and distinct that what is happening in one place is quite different from what’s happening elsewhere. Examples? Detroit and Boston. In Detroit, you can buy a good home in a fairly stable neighborhood for under $200,000, well-within the price range of those who (still) have jobs. Compare this to Boston, where housing prices in many suburbs remain out of reach for the solidly middle-class two-wage earning households.

Homes in Boston aren’t expensive. Homes in downtown Boston are expensive.

Related posts:

1. Housing is (relatively) cheap; so, what are you waiting for?
2. S&P | Case-Shiller housing index shows improved Boston condo market
3. S&P/Case-Shiller Home Price Indices out for October, 2009
4. Greater Boston home prices still well-above Year 2000 baseline
5. S&P | Case-Shiller report shows modest condo price improvement in Boston