Homes More Affordable Now Than Ever? (construction, venting, value, Realtor)

[chuck22b]

In spite of all the complaints about sources, or the NAR, or data... the fact remains that regardless of which report you see... affordability has definitely increased.

Besides the NAR report, you can take a look at the HOI (Home opportunity Index) that KC tends to like... even in their reports they show that on a national level home affordability has increased dramatically in a very short period of time.

"The HOI indicated that 62.4 percent of all new and existing homes that were sold in the final quarter of 2008 were affordable to families earning the national median income of $61,500, up considerably from the 56.1 percent of homes that were affordable to such families in the previous quarter and the 46.6 percent of homes that were affordable to them at the end of 2007."

Affordable Housing

In some areas like the report mentions, there is upward of 93%+ affordability (meaning 93% of the median income earners could afford homes).

At the end, I believe some places have reached "historical" levels of affordability... But, right now the housing market isn't necessarily wrestling with affordability... it's wrestling with the major economic downturn and buyer confidence. That is what I believe is causing prices to continually fall rather than affordability.

With the economy as it is, affordability (ie, prices) may overshoot historical levels... and that is when "ideally" those who can, should purchase. Otherwise, you can wait until things pick up then purchase and pay a slightly higher price.

-chuck22b

[Humboldt1]

Chuck,

When do you see us overshooting on affordability/price? That would be when to buy though if we hit bottom price-wise we may stay there awhile and it may make more sense just to wait and overshoot bottom. I would overshoot bottom than undershoot in this market.

[sheenie2000]

I think it'll take years to hit a bottom. Sellers are slow in reducing prices which is understandable. They aren't just going to slash their price by 100K all at once. It'll be slashed by 5K, 10K every 6 months and this could go on for years.

[elflord1973]

Originally Posted by chuck22b

In spite of all the complaints about sources, or the NAR, or data... the fact remains that regardless of which report you see... affordability has definitely increased.

Besides the NAR report, you can take a look at the HOI (Home opportunity Index) that KC tends to like... even in their reports they show that on a national level home affordability has increased dramatically in a very short period of time.

The methodology in this index is much better than that used by the NAR number. Some of the criticisms of NAR that this improves on:

(1) down payment: the NAR numbers assume a 20% down payment. According to the NAR numbers, any two places with the same monthly payment are equally affordable, which ignores the fact that high price/low rate has a less affordable down payment.

(2) takes into account property taxes. This is very important in some markets.

In some areas like the report mentions, there is upward of 93%+ affordability (meaning 93% of the median income earners could afford homes).

Not NJ -- the market there is terrible.

A problem that it doesn't address is that high rates can be refinanced when rates drop, but the price can't be changed after the fact (not yet anyway... they're working on it) You always have a "call" option on your loan, but no "put" option on the price (though they're working on it ... )

At the end, I believe some places have reached "historical" levels of affordability...

In the sense that it's easy to lock in a low monthly payment, yes.

There are other reasons (besides refinancing) to prefer lower price with higher rates though. The higher rates favor those who prefer to borrow less. If I had a loan at 10% and housing prices were adjusted accordingly, I would throw everything at the house (e.g. instead of putting into the 401k, I'd try to knock down that principal -- if the interest rate is higher than I expect to earn in the market, then this makes sense). If ones annual compensation is uncertain (e.g. part bonus), one can use that to amortize principal but not on a regular basis.

But, right now the housing market isn't necessarily wrestling with affordability... it's wrestling with the major economic downturn and buyer confidence. That is what I believe is causing prices to continually fall rather than affordability.

Prices started falling before the economic downturn. What drove the downturn originally was overly cheap credit. Systematic mis-pricing of credit risk caused everything to come unstuck once the assets stopped inflating. What they are trying to do now is pump taxpayer money into the credit bubble, and try to keep the asset bubble pumped up.

Otherwise, you can wait until things pick up then purchase and pay a slightly higher price.

This won't happen. When things "pick up", there will be a need to bring interest rates back up, and this will cool down prices. At worst, your rates might be slightly higher if you don't time the market to perfection, but if you've been saving on the sidelines, you will have more money upfront, hence less exposure to those rates.

[HappyTexan]

But there are other factors, like job stability, financial worth, ablility to obtain credit that have nothing to do with real estate having a negative impact on the economy.

In some places prices could drop down to 1995 levels but with no jobs, lack of credit and the fear of worsening economic conditions who would buy ?

It's more than just lower home prices now compared to even a year ago. 500K people are on unemployment and there is no end in sight with layoffs. Even the government is saying 2009 will not be better than 2008.

[KCfromNC]

Originally Posted by fairmarketvalue

Here we go again! Are you honestly that incapable of understanding the point here? Your post read as if 57metro areas (15%) of our US markets were selling at "peak" as we all define the word of late. Peak has been defined as "way over priced", "doubled in value in a couple of years", "HUGE run-ups that deviated from the normal rate of appreciation", and on and on.

Nope, it's been used to mean the time when prices were highest. Even you've used it that way. I can link to several posts of yours where you talk about peak prices in your area, which you insist is not a bubble area that saw huge run-ups. So in describing it that way, you either really believe that your area was "way over priced" and had "HUGE run-ups that deviated from the normal rate of appreciation", or you really know that peak doesn't mean what you're claiming here. Pick one or the other, buy you can't be consistent and have it both ways.

[KCfromNC]

Originally Posted by Humboldt1

Where are most of these markets located? I honestly don't know.

It surprised me that there were that many - I figured more would at least be showing a few percent drops. Texas and the surrounding energy-rich states seem to be big on the list. Upstate New York of all places seems well-represented also (some would argue they've been in a recession for the last few decades, though, so steady doesn't necessarily equal good news).

Keep in mind this is from the OFHEO data, which has a number of limitations that may cause it to under-state the changes in prices in either direction. And we're just a week away from the 4q 2008 stats coming out which should cause some changes in this list.

Here's the complete list. Some of these places you've never heard of, others you could name the city and people would automatically know the state they're in.

Altoona, PA
Amarillo, TX
Anniston-Oxford, AL
Auburn-Opelika, AL
Augusta-Richmond County, GA-SC
Austin-Round Rock, TX
Billings, MT
Binghamton, NY
Blacksburg-Christiansburg-Radford, VA
Boulder, CO
Buffalo-Niagara Falls, NY
Champaign-Urbana, IL
Clarksville, TN-KY
College Station-Bryan, TX
Columbia, MO
Cumberland, MD-WV
Dallas-Plano-Irving, TX (MSAD)
Decatur, IL
Florence-Muscle Shoals, AL
Fort Smith, AR-OK
Gadsden, AL
Grand Junction, CO
Hickory-Lenoir-Morganton, NC
Houston-Sugar Land-Baytown, TX
Huntsville, AL
Ithaca, NY
Jacksonville, NC
Jefferson City, MO
Johnson City, TN
Johnstown, PA
Jonesboro, AR
Kankakee-Bradley, IL
Kennewick-Pasco-Richland, WA
Killeen-Temple-Fort Hood, TX
Kingsport-Bristol-Bristol, TN-VA
Knoxville, TN
Lake Charles, LA
Lewiston, ID-WA
Lewiston-Auburn, ME
Lexington-Fayette, KY
Logan, UT-ID
Lubbock, TX
Macon, GA
McAllen-Edinburg-Mission, TX
Mobile, AL
Monroe, LA
Morgantown, WV
Odessa, TX
Parkersburg-Marietta-Vienna, WV-OH
Raleigh-Cary, NC
Rapid City, SD
Rocky Mount, NC
Spartanburg, SC
Syracuse, NY
Topeka, KS
Victoria, TX
Waterloo-Cedar Falls, IA

[elflord1973]

Originally Posted by HappyTexan

But there are other factors, like job stability, financial worth, ablility to obtain credit that have nothing to do with real estate having a negative impact on the economy.

That's how it works -- we're in a spiral now. First, we had a credit bubble. When that burst, the banks sunk with it, along with everyone who was carrying too much leverage (this includes detroit). With tightening credit finding its way to the real economy, balance sheets are threatened, so you get layoffs. This has an impact on consumer spending (in addition to the initial impact from tightening of consumer credit), and then the cancer spreads to retail.

In some places prices could drop down to 1995 levels but with no jobs, lack of credit and the fear of worsening economic conditions who would buy ?

Credit is down, but by no means completely unavailable. Borrowing rates are still very low by historical standards. Overshoot is possible if the recession continues for long enough, but the forecasts I'm familiar with point to recover in the second half of the year.

[elflord1973]

Originally Posted by KCfromNC

It surprised me that there were that many - I figured more would at least be showing a few percent drops. Texas and the surrounding energy-rich states seem to be big on the list. Upstate New York of all places seems well-represented also (some would argue they've been in a recession for the last few decades, though, so steady doesn't necessarily equal good news).

Buffalo-Niagara (for example) missed out on the housing bubble, so there isn't much need for a "correction". Places are very cheap there, there is plenty in the 100-200 range (good luck with that price range in NJ ... )

[HappyTexan]

I noticed Austin TX in that list. Article that just came out:

January home sales down 36% in Austin - Austin Business Journal:

January sales down 36%, median price now at 2007 level.

snippet:
"Single-family home sales and median home prices in the metro area both fell in January, compared with the same month last year, according to a report from the Austin Board of Realtors.


In January, 834 single family homes sold, a 36 percent decrease from January 2008. Median home prices for the month were $175,500, down 6 percent from the same period last year, and roughly equivalent to the median price in January 2007, which was $175,000."