Why So Many Markets: Many markets around the country have tremendous affordability problems that are primarily the residual effect of falling mortgage rates from 1999 through early 2004. Adjustable-rate loans fell from 7.0% to 3.4% during that time, which allowed home prices to increase 50% without affecting the buyer's monthly mortgage payment. For those who purchased with an interest-only loan, home prices could double during that time without increasing the monthly payment.
Why So Much in Some Markets: The markets that have the worst affordability problems tend to be where speculative investor activity drove prices up 200% or more during this time period. Some speculators made a lot of money, and others are in the process of losing it all. Speculative investing is certainly a risky business.
Why So Little in Other Markets: The 9 markets that appear underpriced are largely concentrated in the Midwest, Carolinas and Georgia, where appreciation did not spin out of control during the upswing of this housing cycle. Poor economic conditions or few barriers to entry generally kept price appreciation down in these markets. These markets are just as impacted as the others by the rising mortgage rates since 2004 and the subprime market meltdown