Payment on a conventional mortgage for a median-priced home now represents just 12% of median-family income; the lowest percentage since records began in 1971, according to data from the Fiserv (FISV) Case-Shiller Index released Tuesday. 

The relationship between home prices and rents is now at 1998 levels, and the ratio of median single-family home price to media family income is lower than any time since 1991. 

This dramatic rise in affordability is due to the deflation of home prices, which Fiserv Case-Shiller predicts will hit bottom out later this year at 35% lower than the peak prices of 2006. 

Fiserv Case-Shiller foresees the record-level affordability will eventually bring more first-time and trade-up buyers back into the housing market, especially as apartment rents are on the rise and new household are forming, making buying the cheaper options. The popular Standard & Poor's/Case-Shiller Index looks at home prices trends in 20 major metro areas whereas the Fiserv Case-Shiller Index examines home prices in 384 metro areas across the country. Fiserv licenses to Standard & Poor’s data for the 20 markets that constitute the S&P Case-Shiller Index, according to a spokesperson with the global data analytics firm.

This demand from first-time and trade-up buyers will also eventually put a floor under home prices, which Fiserv Case-Shiller said will end the nearly seven-year collapse in property values. Prices will then begin to rise at an average annualized increase of 3.9% over the next five years. 

 “The precipitous drop in home prices was an immediate cause of the last recession and the financial crisis. Falling home equity has cut into household consumption and has further constrained the economic recovery,” said Fiserv’s Chief Economist David Stiff. “However, very low prices have also started to draw in more buyers. As demand for houses ramps up, construction activity will increase and residential investment will begin to make a substantial contribution to the recovery and GDP overall.”

The data show results for the fourth quarter of 2011 home prices fell in 314 of 384 metro districts tracked by Fiserv Case-Shiller, and the average home price fell by 4% to a new post-bubble low. They predict prices will continue to decline by an additional 0.8% through the end of this year, but say that almost all non-price metrics — including existing home sales, rising order volumes and increased spending on home improvement — point to a rebound next year.