When it comes to home affordability, levels are at near record generational highs.

The National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) indicates that in today’s market “72.6 percent of all new and existing homes sold in the second quarter of the year were affordable to families earning the national median income of $64,200.”

There are smaller markets that see an even higher rate of affordability, such as Kokomo, Indiana, where 95.8 percent of homes sold during the second quarter of 2011 were affordable to families earning the area median income of $59,100.

“At a time when homeownership is within reach of more households than it has been for more than two decades and interest rates are at historically low levels, the sluggish economy and the extremely tight credit conditions confronting home buyers and builders remain significant obstacles to many potential home sales,” said Bob Nielsen, chairman of the National Association of Home Builders (NAHB).

Unfortunately, this high level of affordability, alongside historically low interest rates, has not translated into more sales. Existing-home sales declined in July, down 3.5 percent from June.

Lawrence Yun, NAR chief economist, said there is a tug and pull on the market. “Affordability conditions this year have been the most favorable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers,” he said. “Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs.”

Regionally, existing-home sale were down in just the South (-1.6) and West (-12.6). The Midwest experienced a 1.0 percent growth rate, while the Northeast rose 2.7 percent. All regions have experienced double-digit gains over July 2010. The largest increase was seen in the Midwest, which saw existing-home sales rise 31.3 percent year over year.

The NAR reports that the national median existing-home price was $174,000 in July, down 4.4 percent from July 2010. Distressed homes still made up nearly 1/3 of the market, at 29 percent.

The delinquency rate for mortgage loans increased for the second quarter of 2011, up to 8.4 percent of all loans outstanding.

According to the Mortgage Banker’s Association’s (MBA) Chief Economist, Jay Brinkmann, “While overall mortgage delinquencies increased only slightly between the first and second quarters of this year, it is clear that the downward trend we saw through most of 2010 has stopped. Mortgage delinquencies are no longer improving and are now showing some signs of worsening. The good news is the continued decline in long-term delinquencies, those mortgages that are three payments or more past due. The bad news is that drop is offset by an increase in newly delinquent loans one payment past due.”

Yet, the temporary decline in foreclosures that some analysts attribute to a temporary pause for lender or judicial procedural reviews, could instead be a true decline in foreclosures.

The MBA reports that “foreclosure start rates fell to their lowest level since the fourth quarter of 2007. Foreclosure inventory rates also fell, to their lowest level since the third quarter of 2010. While some have argued that this drop in foreclosures is a temporary drop which does not reflect the problems yet to come, this does not appear to be the case, at least at the national level. There are still many problem loans that need to be resolved, but the idea that there is a growing backlog of loans being held back from foreclosure is simply not supported by these numbers. The percentage of loans 90 days or more past due continues to fall along with the foreclosure rate, and is at the lowest point since the beginning of 2009. Were there a growing backlog, we would expect to see the 90-plus day delinquent category increasing.”

Without this backlog, foreclosures could be losing steam, meaning prices and the market as a whole could be headed toward stabilization.

Click here to view current Market Conditions in your location.