Here is an excerpt from BofA’s latest research note on US housing:

“Outside of income growth, the decision to purchase a home is a function of mortgage rates and prices. Mortgage rates have collapsed to record lows and national prices have tumbled about 35% from the peak, returning to mid-2002 levels. Despite weak income growth, affordability has never been better. In theory, this should underpin housing demand. The historical relationship between affordability and home sales has been tight – correlation of 80% from 1980 to 2000 – but it started to break at the turn of the century.”

Chart: Divergence between affordability and home sales

Source: Bank of America Merrill Lynch

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