Firm: Baltimore-area prices close to historical norm
Four years ago, a housing affordability index that stacks metro areas against their own histories showed the Baltimore area at its most unaffordable point on record.
Two years ago, it had worked its way down from the ranks of "significant affordability concern" to good ol' "affordability concern."
Now the index, put together by John Burns Real Estate Consulting, pegs the Baltimore region at just about its historical norm -- measured over a stretch of time starting in the early 1980s. It's slightly on the "underpriced" side now, making it an area of "less affordability concern," the California company says.
But the Baltimore area's price drops have been so muted compared with some regions that it's one of the least underpriced areas, compared with their own histories. Of the 183 areas John Burns tracks, 171 are more underpriced than Baltimore. More on that in a moment.
The index -- which melds prices, incomes, mortgage rates and down payments -- isn't meant to predict what home values will do at any given time, so you probably shouldn't hold your breath for a quick return to rising prices. (A separate Johns Burns analysis suggests a very large "shadow inventory" of distressed properties not yet on the market, for instance.)
But the company believes its index is a useful measure of where you can expect prices (compared with incomes and rates) will be long-term.
"Typically, things fall in line with their historical norms," said Erik Franks, a senior research analyst at John Burns. "That's basically true of any commodity."
Here's how the index works -- and how Baltimore compares with other regions:
John Burns compares median annual income in an area with the annual mortgage payment for the median-priced home, so changing mortgage rates over time affect the affordability index just as changing prices and incomes. (Rates are very low now and were very high in the '80s.)
The company calculates the mortgage payment off a 20 percent down payment, because that's what you always used to have to put down on a conventional loan. But it tries to account for that outlay by adding one-seventh of the down payment to the mortgage tally, under the rationale that people tend to stay in their homes about seven years.
When a metro area is at its least expensive time to buy, it hits zero on the affordability index. Most expensive warrants a 10. Five is the dividing line between overpriced and under-.
The Baltimore area is at 4.6 at the moment and has bounced between 4.5 and 5.5 since last November, Franks said.
Forty-one metro areas, meanwhile, are at zero -- the cheapest time in their histories. They range from the Sunbelt usual suspects, like Las Vegas, to Bridgeport, Conn. and Tacoma, Wash.
Eight places are on the overpriced side of the line. No. 1 on that list: Bethesda, at 5.7.
In case you're wondering, the Baltimore area's zero moment came at the end of the '90s, right before the bubble.