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Everyone seems to have forgotten that we had a huge bubble in the price of housing. TV pundits are so focused on whining about "the fall in house prices". Personally, as a member of the Lower Fifty (defined below), I'm rooting for the decline!
--US Census Bureau defines median household income at just about 50K annually (figures based on 2006-2007--the most recent they have at their website). I call this median family the "Lower Fifty".
--National Association of Realtors reports on December 23 that the new median house price is 181,300.
--Using bankrate.com calculator, I plug the Lower Fifty family's finances in. I assume small savings (3K for downpayment), but also small debt (250 car payment, 350 credit card). Probably my hypothetical family is doing better than most Americans, but hey, you gotta make some assumptions.
RESULT: Lower Fifty family can afford 135,000 home! Now if house prices would just drop another 50K, we'll be in business.
Everyone seems to have forgotten that we had a huge bubble in the price of housing. TV pundits are so focused on whining about "the fall in house prices". Personally, as a member of the Lower Fifty (defined below), I'm rooting for the decline!
--US Census Bureau defines median household income at just about 50K annually (figures based on 2006-2007--the most recent they have at their website). I call this median family the "Lower Fifty".
--National Association of Realtors reports on December 23 that the new median house price is 181,300.
--Using bankrate.com calculator, I plug the Lower Fifty family's finances in. I assume small savings (3K for downpayment), but also small debt (250 car payment, 350 credit card). Probably my hypothetical family is doing better than most Americans, but hey, you gotta make some assumptions.
RESULT: Lower Fifty family can afford 135,000 home! Now if house prices would just drop another 50K, we'll be in business.
Whatever! Didn't anybody ever tell you not EVERYONE should be a homeowner? Please, get your head out of the clouds! Our society has a housing cycle for a reason. There is also a rental market for a reason. So what do you suppose would happen to all of those rental properties if everyone was able to "afford" a home? Just wondering.
Everyone seems to have forgotten that we had a huge bubble in the price of housing. TV pundits are so focused on whining about "the fall in house prices". Personally, as a member of the Lower Fifty (defined below), I'm rooting for the decline!
--US Census Bureau defines median household income at just about 50K annually (figures based on 2006-2007--the most recent they have at their website). I call this median family the "Lower Fifty".
--National Association of Realtors reports on December 23 that the new median house price is 181,300.
--Using bankrate.com calculator, I plug the Lower Fifty family's finances in. I assume small savings (3K for downpayment), but also small debt (250 car payment, 350 credit card). Probably my hypothetical family is doing better than most Americans, but hey, you gotta make some assumptions.
RESULT: Lower Fifty family can afford 135,000 home! Now if house prices would just drop another 50K, we'll be in business.
That $350 credit card? Is that monthly? Or is it the balance, which should be paid in full? If that is the minimum monthly payment, there are other compelling financial fundamentals to address prior to taking on more debt.
That $3,000 downpayment will only get one into a VA or USDA loan. If a $135,000 home is the goal, it better be about $5,000 for downpayment. And it isn't adequate nest egg savings to buy, only a portion of the savings needed, unless the cash flow is superb.
There maintenance and other ongoing expenses.
I don't know about in your area, but here, I can find a $135,000 home easily. Will it be a McMansion with granite countertops and all the bells and whistles? Will it be in a prime neighborhood? No, it won't, but it will be a fine starter home (in your scenario, we're talking about a first-time homebuyer, correct?), 3 bedrooms, 2 baths, built since 2000. A quick search of our MLS using those stats and a map search that makes sure it's within a reasonable commute to downtown turns up 132 on the market right now.
So, if you're a first time home buyer and can get a loan (there's the rub), and you can afford a $135,000 home and are willing to purchase a first time home buyer house, you'd be in good shape here.
What kind of house do you think needs to come down $50,000 so you can afford it?
The thing about 'MEDIAN' anything is with out knowing the range /distribution that goes into the number it is real hard to say what , if anything, it is representative of. This is especially true of the NAR data -- there is a dearth of higher end homes coming to the market, and those that are on the market are not representative of 'normal' selling conditions.
Instead of rooting for a fall off of another $50K in selling prices it might be a good idea to put effort into something you have a bit more control of -- increasing your income...
I'm figuring that 50K is the LOW side of how much housing will correct. Since cycles to do just return to equilibrium immediately (they tend to overshoot in the other direction), something like a 75-100K decline would be more logical.
Nothing the government does can truly replace the free credit that was available before, nor truly restore entites such as Fannie or Freddie. Also, productive capacity has increased meaning the houses built were done so at a lesser cost due to factors such as immigrant labor (illegal mostly) and labor efficiency (massive developments). Therefore, all of these factors combined will have houses end up being even cheaper than the 3x income standard some use in their calculations. 2011-2012 will be a FANTASTIC time for young savers (what few there are of them anyway). I look forward to re-emerging from the sidelines in about 2-3 years to be a proud homeowner again!
Oh, and if rates rise, my saved up funds will buy even more home as prices will certainly fall even further than my predictions (I assumed that interest rates would hover at the 5-7 range, which is very unlikely)
Instead of rooting for a fall off of another $50K in selling prices it might be a good idea to put effort into something you have a bit more control of -- increasing your income...
Falling prices is one of the most natural and best things in economics, regardless of the consumer good. It is a direct result of increased productive capacity. The same house should cost less after 50 years. Not just because of the age, but because there are better and more effective ways of building them emerging.
I'm not wishing to play the rising income cat and mouse game. I'll just wait for prices to fall, rooting all the way!
Whatever! Didn't anybody ever tell you not EVERYONE should be a homeowner? Please, get your head out of the clouds! Our society has a housing cycle for a reason. There is also a rental market for a reason. So what do you suppose would happen to all of those rental properties if everyone was able to "afford" a home? Just wondering.
And if everyone's salary is 50K and all the houses are 200 and up, then what will happen to the housing market? Even if a person has a 20% downpayment, he still can't meet the monthly mortgage payment.
Homes are not like digital cameras. They are generally non-portable, low "fungibility", not really a commodity.
The market for "shelter" has many alternatives. Some people ought to remain renters.
Houses not reallly a commodity, gotcha.
Heck, what do I know about economics? I only called a massive drop in house prices, the end of the supposedly bulletproof Raleigh, NC housing market, the end of Freddie/Fannie, and the Dow/Gold ratio dropping significantly. I suppose they're just considered "beginner's luck"?
I am not arguing who "ought" to remain renters or who "ought" to stay in their home. I'm just telling you what will likely happen and for what reason. Supply for housing has exploded without a parallel explosion in income and population, the cost of building homes has fallen, and too people own too much home to remain above water (meaning they could take additional family members or boarders, reducing housing demand further).
Furthermore, cars are considered a "necessity" by most in this country, yet it doesn't stop it from decreasing quickly in price as it ages. The thought that housing experiences sustainable appreciation (esp given inflation) given how much developable land exists (God ain't makin' more land is a fallacy) is probably the most laughable concept I can imagine.
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Or is it the balance, which should be paid in full? If that is the minimum monthly payment, there are other compelling financial fundamentals to address prior to taking on more debt.
