Will Deals on Homes Help Fix the Housing Market?

Homes are more affordable than ever, and buyers have more reasonable financing options for high-priced properties, according to recent reports. But what does that mean for the overall market?

Falling prices are making homes more affordable than ever in some cities, according to he latest Housing Opportunity Index released Tuesday by Wells Fargo and the National Association of Home Builders.

Families earning the median household income–$61,500–could afford 53 percent of all homes sold in the first three months of 2008 in the U.S. In the same period in 2007, just 44 percent of families could, according to CNNMoney.com.

Homes prices, in fact, are at the most affordable level they’ve been at since 2004, CNNMoney.com says.

Even luxury homes are less expensive. Although they’re holding their own in some markets, high-priced home prices have fallen as much as 20 percent in the past year in some parts of the U.S., according to the Orange County Register.

And jumbo loan rates to buy those homes are finally dropping: Interest rates for large mortgages in areas like Northern California and Washington, D.C. are finally becoming more reasonable, the San Jose Mercury News says.

When Congress approved lower rates for mortgages of up to $729,750 in high-cost housing markets–via the stimulus bill–homebuyers thought they were in for a big break.

But rates didn’t fall quite as they’d expected–until Friday, when a borrower could nab a 6 percent rate for a 30-year, $500,000 mortgage–compared to a 7 percent rate for the same loan last week.

And, the Washington Post says, the era of 3 to 5 percent downpayments  is returning for buyers with good credit.

So can we expect a huge sales boom soon?

Maybe. "Boom" may not be the right word–but the recent efforts to increase activity in in the jumbo loan market and the increased home affordability could have a profound effect on the huge housing inventory.

Once that starts shrinking considerably, we may finally begin to feel like a true recovery has begun.

Of course, even though homes are more affordable, it doesn’t mean people can afford to get into them–financing is still hard to come by, and that’s unlikely to change anytime soon.

But could these recent changes–opening the possibility of homeownership up to a number of new buyers–help sell a significant number of homes? Or are the changes more likely to spur refinance activity?  And which would have the biggest effect on the market?

What do you think?