Real estate's February report card

Since we began tracking the data for the major metropolitan statistical areas (MSAs) in 1981, there has never been a better time to buy a home. The median-income household needs only 27 percent of their income (an all-time low) to qualify for the median-priced home, and that household is also only paying 3.3 times their income for the house (3.1 is the all-time low).

While we acknowledge that there is a tremendous demand/supply imbalance that will probably drive prices lower, long-term-oriented homebuyers have the opportunity of a lifetime in most markets around the country. Phoenix is clearly one of those markets. New York clearly is not. Do prospective buyers in most markets really want to gamble that prices AND mortgage rates will be cheaper next year, or can they take a longer-term view that it doesn't get much better than this?

The table below shows the comparison between the current and historical average housing cost/income ratio for the top 20 resale markets in the country. All markets are below the average, with the exception of New York, which is currently at its average, and Seattle, which is slightly above average.

Our grading system of the economy and the housing market is a "bell curve" model, with statistics at an all-time high receiving an "A," statistics near the long-term average receiving a "C," and the worst times ever receiving an "F." In this grading system, it is OK to be a "C" student.

Here is our current report card:

Economic Growth: D

Real GDP (gross domestic product) fell to an annual rate of -6.2 percent, which was the most significant decline since mid-1980. The employment sector is also quickly deteriorating, losing 4.3 million jobs in the last year. The 3.1 percent year-over-year decline in employment is the largest in 50 years. The headline unemployment rate has increased to 8.1 percent, reaching its highest level since 1983, and the real unemployment rate is 14.8 percent (including part-time workers looking for full-time work). Mass layoff events -- job cuts of more than 50 jobs -- have risen 51 percent in the last year. Inflation continues to decline, with the Full CPI (consumer price index) now at 0 percent and the Core CPI (all items less food and energy) reaching 1.7 percent.

Leading Indicators: D-

The leading indicators declined further this month, pointing to an extended period of economic weakness in the near future. In February, stocks generally experienced double-digit percentage declines compared to January and resulted in year-over-year losses of between 39-45 percent for each of the four major stock indices we track. Homebuilder stocks were once again battered, declining 49 percent year-over-year. The price of crude oil has fallen quickly since September, and that trend continued in February as the average price per barrel reached just $39.16 in February. Adjusted for inflation, oil prices are back to early 2004 levels. The Leading Economic Index improved slightly from the previous month, but the negative growth rate of -3.3 percent suggests further weakness in the economy for the near-term. Despite the small uptick in January's value of the Purchasing Managers Index, it remains near its lowest point since the early 1980s, indicating continued contraction in both the manufacturing sector and overall economy. ...CONTINUED

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