Housing Affordability Surges 25 comments
January 30, 2009
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The National Association of Realtors (NAR) released its latest Housing Affordability Index (HAI) today, showing that housing affordability reached an all-time record high of 158.8 in December (see chart above). A HAI of 158.8 would mean that the typical household earning the median family income of $61,058 in December would have 158.8% of the qualifying income to purchase a median-priced existing single-family house ($174,700) with a 20% down payment, which would be the highest level of housing affordability since the NAR started reporting housing affordability in 1988. Since mid-2006, the HAI has risen by almost 60 points, from 100 to 158.8 (see chart).
Stated differently, the annual qualifying income required to purchase a median-price house (with a 20% down payment) is only $38448, with monthly payments based on a 5.59%, 30-year fixed-rate mortgage ($801 per month for principal and interest). Given the median family income of about $61,058, the typical family would have 158.8% of the income required to qualify for the mortgage to purchase the $174,700 home.
Hopefully, the increasing affordability and new record-high housing affordability will play an important role in the real estate market's recovery.
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Agreed! And unfortunately that places even more downward pressure on an already falling market, since foreclosure sales are quite often at 20% or more off going market values for similar properties. Couple that with the fact that unless the 'new' owner is willing to pay cash or assume the existing mortgage, he may find it very difficult to find financing in today's market unless he can inject a fair amount of equity into the property.
Noting the stated payment ($801) is on the 80% ($140K) loan this hypothetical family is over 25% for the housing cost on PI alone. TI will put them over 30% even in the tax friendly zip codes.
Unless this 'family' is a single earner, $38K is not far from the poverty line and if there are any kids they are in earned income credit range.
A family with double the income and nothing more than a car payment could have trouble with this mortgage. What nonsense.
They need to go away.
Anyone who trusts anything from the National Association of Real Estate Salesmen is not dealing with a full deck.
Forget about it!
The sales price he is using is obviously weighted by foreclosure "sales." This would include semi-finished units in subdivisions which may not even have full utiliities. And they would be in areas of the country without employment due to severe local recession.
Sometimes, you need to use common sense. The author is right that there are a lot of affordable units out there. What he does not point out is that the average buyer would consider himself grossly underhoused if he bought one of the "average" units. And to buy one of those units, he would have to move to an area of the country where he couldn't get a job at his current income level.
LordDarley
1. As was already pointed out, a family with that level of income would most likely not have the 20% downpayment necessary to qualify for such a mortgage.
2. It does not take into account insurance. maintenance, legal and other fees associated with the mortgage. It is based solely on principal and interest payments. Those two factors alone constitute a very poor indicator of true affordability, since those 'other' factors must be calculated into any equation aimed at determining accurate housing costs.
3. Even a modest 1% increase (very likely) in the interest rate at time of renewal would add close to 15% ($117) more to the homeowner's monthly payments, and technically would likely no longer qualify for the mortgage, even if he could somehow find the additional money to pay.
I'm sure in Flint houses are VERY affordable (to those lucky few who have a job), out here in the rest of the world real estate is grossly overpriced. Price to rent ratio is the statistic you should use to determine affordability, not fairy tales spun by the completely discredited NAR and its chief shill I mean economist Lawrence Yun.
I advised you of this the last time you posted. Yet you continue to use the Pollyanna statistics of a completely discredited trade organization that apparently inhabits a different universe.
Please use your own noggin, do you have 20% down? No I didn't think so. That's because 20% of a massively inflated price is still a TON of money. Housing prices can only get cheaper from here on out (so there's no reason to buy now) because jobs are constantly being lost. Over 100,000 jobs were lost in the US in just the last week. If people lose their jobs, this doesn't make houses "more affordable," it makes house less affordable. And when people lose jobs, they default on their houses causing housing prices to go down even further.
Please be smart with your money and look at the environment around us. Housing prices are still at record levels on both coasts. The NAR continues to tell us to buy houses (and they have been telling us the same dribble every single year since they've been established by the Realtors). Buying in this environment will set your retirement back 20 years in most states.
Unfortunately, housing prices are still declining precisely because they are not generally in line with affordability.
I do not understand all you people attacking housing as if it was the most toxic and harmful things in the world. Such a sentiment is sickening. Houses are physical assets with real value and real utilization. It is a basic and important human need to live under a roof. Read this:
seekingalpha.com/artic...
Most Americans do live under a roof. You either own a home or rent one. Few people actually sleep on the street. So housing is always a question of picking between renting or buying.
To the one suggesting that an average family can not afford to pay $801 a month to buy a median price home. Let me ask you how does the same family afford to rent a home at $1000 or even more per month?
You have the benefit of tax deduction. So buying a house at $801 a month also saves you $250 a month on tax. It's equivalent to paying $550 per month for rent. If it's me of course I prefer own a home than renting one. But then I am already a home owner today.
I think as the dollar collapses we will see another housing boom again. Holding any physical asset is much better than holding any paper asset.
On Jan 31 01:49 PM Mark Anthony wrote:
> I do not understand all you people attacking housing as if it was
> the most toxic and harmful things in the world. Such a sentiment
> is sickening. Houses are physical assets with real value and real
> utilization. It is a basic and important human need to live under
> a roof. Read this:
>
> seekingalpha.com/artic...
>
>
> Most Americans do live under a roof. You either own a home or rent
> one. Few people actually sleep on the street. So housing is always
> a question of picking between renting or buying.
>
> To the one suggesting that an average family can not afford to pay
> $801 a month to buy a median price home. Let me ask you how does
> the same family afford to rent a home at $1000 or even more per month?
>
>
> You have the benefit of tax deduction. So buying a house at $801
> a month also saves you $250 a month on tax. It's equivalent to paying
> $550 per month for rent. If it's me of course I prefer own a home
> than renting one. But then I am already a home owner today.
>
> I think as the dollar collapses we will see another housing boom
> again. Holding any physical asset is much better than holding any
> paper asset.
Average home price of $170k? In the MidWest maybe...where incomes are much lower than your stated median.
In California, around either SF, LA, or San Diego, you'd be lucky to have a job earning $61,000, or to find a doghouse for $170k - the back yard alone (if you're lucky to have one) would usually price around $200k.
You'd make Lawrence Yun proud...keep it up.
Every stat out there is questionable or can be debated, but nobody can deny prices being extremely low. In most places we're WAY before pre-bubble pricing. But of course, 99% of people miss out on bottoms of anything.
On Jan 31 10:18 AM Marcap wrote:
> The original argument of affordability is flawed in at least 3 ways:
>
>
> 1. As was already pointed out, a family with that level of income
> would most likely not have the 20% downpayment necessary to qualify
> for such a mortgage.
>
> 2. It does not take into account insurance. maintenance, legal and
> other fees associated with the mortgage. It is based solely on principal
> and interest payments. Those two factors alone constitute a very
> poor indicator of true affordability, since those 'other' factors
> must be calculated into any equation aimed at determining accurate
> housing costs.
>
> 3. Even a modest 1% increase (very likely) in the interest rate at
> time of renewal would add close to 15% ($117) more to the homeowner's
> monthly payments, and technically would likely no longer qualify
> for the mortgage, even if he could somehow find the additional money
> to pay.
Wait. It's well deserved. Him and his NAR pals should be taken out to the woodshed and stripped of their trowsers.
Regardless, this article was intended to suggest a housing bottom would start tomorrow. It just points out the facts have changed in favor of housing stabilization. Based on the comments, it's caught alot of people off guard forcing such a negative response to basic facts. Seems like a lot of people in denial... very bullish!
On Feb 02 11:32 AM Stone Fox Capital wrote:
> These attacks on housing affordibility stats is laughable and a very
> bullish sign. You just can't deny that the legitimate purchasae of
> a house is much more affordable now. Now the ability to actually
> get into that house is questionable b/c of the stronger requirements
> for a downpayment. Though, I still think its possible with good credit
> to buy a house with lower down payment but you'll of course have
> to pay PMI.
>
> Regardless, this article was intended to suggest a housing bottom
> would start tomorrow. It just points out the facts have changed in
> favor of housing stabilization. Based on the comments, it's caught
> alot of people off guard forcing such a negative response to basic
> facts. Seems like a lot of people in denial... very bullish!
1) Look at the source of the information. Having the NAR advocate cheap housing is like having Exxon advocate cheap oil over clean energy. There's something inherently wrong with the source of the information.
2) Talk about affordability is premature given that employment is just beginning to show a massive crisis approaching. Your point about housing being affordable due to a substantial price decrease completely misses the point that average incomes probably are about to fall off a cliff. These are also "basic facts" - you have to consider the entire picture, and take off the rose-colored glasses.
Because of the rather blatant nature of the author conveniently skirting these points, my own reaction was much harsher than it otherwise would have been. I think your own comment is far off the mark as well, but I find no reason to cry foul over it, unless you also represent the NAR.
On Feb 02 11:32 AM Stone Fox Capital wrote:
> These attacks on housing affordibility stats is laughable and a very
> bullish sign. You just can't deny that the legitimate purchasae of
> a house is much more affordable now. Now the ability to actually
> get into that house is questionable b/c of the stronger requirements
> for a downpayment. Though, I still think its possible with good credit
> to buy a house with lower down payment but you'll of course have
> to pay PMI.
>
> Regardless, this article was intended to suggest a housing bottom
> would start tomorrow. It just points out the facts have changed in
> favor of housing stabilization. Based on the comments, it's caught
> alot of people off guard forcing such a negative response to basic
> facts. Seems like a lot of people in denial... very bullish!
-- I deny it. --
Layoffs have just begun. If you might get laid off in the next year, then perhaps it is not a good time to buy, even if the price is down. If you take the $61,058 above and assume a 25% probability of layoff, then your household must be prepared to get by on $45,794. Employment numbers are getting worse, and at an increasing rate.
Re: "You have the benefit of tax deduction. So buying a house at $801 a month also saves you $250 a month on tax. It's equivalent to paying $550 per month for rent. "
-- No -- The working family described in the article pay no federal taxes after personal, dependents, property & child care tax credits. They don't have a chance to claim the mortgage interest deduction.
Physical assets are indeed good to hold. But I'd rather have a medical plan than to hold a physical vial of insulin that doesn't keep.
Buy low, sell high. But if you're eventually not going to be able to pay the low payment, then you should not buy at all.