Nationwide, home affordability has received a serious boost from the combination of falling home prices and falling mortgage rates.

Today, because of the sagging economy, in most parts of the country, the cost of owning a home versus renting one is now very close to its historical average.

That said, though, near every major city, there are some neighborhoods in which home affordability and quality of life are stand-out. Using real estate data from OnBoard Informatics, Business Week highlights these areas in a report it calls the “Best Affordable Suburbs“.

Now, the country’s “Best Affordable Suburbs” doesn’t list the nation’s most affordable suburbs, but instead, a group of cities, towns, and villages in which the populace sits between five and sixty-thousand, and the economy, the schools, the lifestyle and the crime levels are all within a desirable range.

As concluded by Business Week, these are areas in which buying a home is a good value.

At the top of the list is Awake, Wisconsin, a suburb 20 minutes west of Milwaukee, prized for its outdoor lifestyle and healthy jobs market. The complete 50-state listing is posted at Business Week’s website.

In reading the headlines this morning, you’d think that last month’s Existing Home Sales figure signaled more trouble ahead for the housing market.

Quite the contrary.

Beyond the attention-grabbing headlines is the real story; the one that shows — once again — that housing market fundaments are coming back into balance.

As home values tick lower, it appears, value buyers are stepping in and snapping up supply. It’s true that the number of homes sold fell to its lowest levels in 12 years, but we can’t ignore the fact that the number of homes available to buy fell, too.

• Banks have put the brakes on foreclosures
• Economic uncertainty is reducing job-related relocations
• Builders have all but stopped building new homes

The national housing supply is as low as it’s been in more than a year.

Based on the current rate of sales activity, the national housing supply would be 100% sold in 9.6 months — a two-month improvement from the high point set in June 2008.

Demand for homes is expected to rise, too:

• The Federal Reserve is trying to hold mortgage rates low
• Fannie Mae is opening its checkbook to real estate investors
• The stimulus package is granting tax credits to first-timers

So, it’s not that the headlines are wrong; it’s just that they’re incomplete.

In looking at all of the data and not just one sliver of it, we can find hope. Falling supply plus rising demand leads home values higher and that’s the basis for a recovery.

One popular housing theory is that — before a bona fide housing recovery can begin — the cost of owning a home versus renting one must return to historical levels.

If that belief is a truth, a national return to rising home prices may be in store for 2009.

Falling home prices coupled with falling mortgage rates, too, have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.

This is the exact 18-year historical average and not since 2001 has the gap been this small.

As reported by the Wall Street Journal, though, the study has some flaws. For example, the data doesn’t account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies.

But, combining a relatively low cost of ownership with the government’s $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.

This, too, is thought to be a key element of the housing recovery.

In many markets (but not all), home prices are expected to edge lower through 2009. Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.

As part of the stimulus package passed last week, Congress authorized a temporary increase to conforming loan limits in certain high-cost parts of the country.

“High cost” is defined by a regions’ median sales price.

With the temporary increase, a greater share of Americans can now qualify for Fannie Mae- and Freddie Mac-backed loans, usually the least expensive source for mortgage money.

Higher loan limits can be good for the housing market and the broader economy for two reasons:

1. Cheaper money can spur new home demand, supporting home values.
2. Higher loan limits render more homeowners refinance-eligible, freeing up cash for spending, saving, or investing.

The complete county-by-county loan limit list is available on the OFHEO website.

Of the 3,232 U.S. counties, 10 percent are considered “high-cost”. Residents of these areas can expect the same low rates offered to the rest of the country, but with a slight premium. Be sure to ask your loan officer about how it works.