Housing back to pre-bubble prices

Here's where falling home prices have bought us: back to where we were in 2003, before the real estate bubble began.

New data indicate that housing is more affordable now than it has been since the boom, at least in some markets, with the housing affordability index hitting a 35-year low in some areas in the third quarter of 2010.

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"Based on incomes, this is as affordable as it gets," Mark Zandi, the chief economist at Moody's Analytics, which analyzed the data, told The Wall Street Journal. "If you can get a loan, these are pretty good times to buy."

This is how Nick Timiraos of the WSJ explained the situation:

During the boom, lax lending and speculation pushed house-price inflation far beyond the modest rise in household income. Nationally, the ratio of home prices to annual household income reached a peak of 2.3 in late 2005. But by last September, it had fallen to 1.6, matching the lowest level in the 35 years the data have been collected and well below the historical average of 1.9 between 1989 and 2003.

The falling prices don't look as good to people who already own homes, particularly those who want to sell. New data from Zillow's Home Value Index found that 27% of Americans with mortgages owed more than their homes were worth in the last quarter of 2010, up from 23.2% the previous quarter. Post continues after video.

Zillow reported an average price drop of 2.6% nationwide, the largest single-quarter decline since the first quarter of 2009.

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Of course, data varies widely by region. Moody's measured affordability in 74 markets, and the affordability index is back down to the average of the years 1989 to 2003 in 47 of those markets. Prices in Cleveland are back to 1991 levels. In contrast, homes are still overvalued in the Pacific Northwest, as well as along the Atlantic corridor from Baltimore to Boston.

Want to see how your region is faring?

The WSJ has a chart showing the quarterly price drop for major metropolitan areas as well as the percentage of homeowners with underwater mortgages. The chart also shows the median home price last quarter, how much property values have declined in the last year, and how much values have declined since their peak.

USA Today has a chart showing the 30 U.S. counties with the highest percentage of mortgages underwater and the 30 with the lowest percentages as of Sept. 30.

Detroit showed the largest drop in property value in the last quarter, 7.5%, followed by Chicago and St. Louis. Year to year, the greatest declines were in Detroit (17.4%), followed by Miami-Fort Lauderdale (15.4%) and Atlanta (15.3%). Miami-Fort Lauderdale showed the greatest decline in home values since the peak (54.8%), followed by Orlando (54.4%) and Phoenix (53.6%).

The areas with the largest percentage of underwater mortgages were Phoenix (69.9%), followed by Orlando (61.7%) and Atlanta (54%).

If you're wondering what it's like to live in an area that is suffering from the real estate bust, read Julie Schmit's USA Today report from Merced, Calif., where the median home price has fallen 68% since 2006. In Merced County, 60% of homeowners with mortgages owe more than their homes are worth.

Teachers John Bethan, 58, and his wife, Sandra, 55, are among those who are underwater on their mortgage. The Bethans owe $375,000 on a house they estimate is worth $150,000. They plan to stay in their home and continue paying their mortgage, delaying their retirement if they have to.

"A lot of these people bailed," John Bethan told USA Today. "But we did everything right, and we're stuck. It's a bit of a bitter pill."

More from MSN Money:

• A house can be an anchor around your neck
• Why are home prices still falling?
• What's it take to get a home loan?
• HAMP is a failure: Here's why
• Spring cleaning: Update your home inventory
• Return a video late? You may not get a mortgage