Use access key #2 to skip to page content.

Housing Affordable Now?



May 21, 2008 – Comments (3)

Here are some interesting numbers I get once a month.

3 Comments – Post Your Own

#1) On May 21, 2008 at 4:31 PM, Evlampius (< 20) wrote:

Right, you can afford a house which sells for under $5000 - but who wants to?? Here are some reasons to add:

1 - houses are destroyed by looters.

2. Crime Rate is increased

3. You will be taxed on an approximated home value of 100,000+ rather than what you pay for the house.

 Sure you can afford it , but it doesnt mean anything - adjusted for the factors above it's an illusion.

Report this comment
#2) On May 21, 2008 at 8:57 PM, abitare (29.91) wrote:

I like how things are becoming affordable and for those that stay employed it should be getting a lot cheaper, as those that lose their jobs will eventually lose their house.

Of interest, DC housing is still high. It is going to be interesting  to see how high DC real estate stays if these morons attack Iran. 

Report this comment
#3) On May 22, 2008 at 2:16 AM, saunafool (< 20) wrote:

I want to know how these guys call San Francisco, CA "affordable" (their index number being less than 7.5) when housing costs consume 93% of income?

Ditto for just about every other city in California, where housing costs are still more than 50% of income.

Plus, I think "affordability" has little to do with price. It is highly dependent upon interest rates. dwot did a great series on the 6 degrees of leverage in the economy, showing how people who bought when interest rates were high and houses were "unaffordable" are the ones who made lots of money.

I think it's one of the big problems with parents giving their kids advice about housing right now. They remember when they bought that the payment was a stretch, but that their income eventually grew and they were able to refinance to a better rate to create a huge cash flow gain. Meanwhile, because interest rates were in a massive downtrend (going from 15% to 5% over 20 years) "affordability" went up even though prices skyrocketed.

Now, the only reason some places look affordable is because the interest rates are low (if you can qualify for the loan). Prices have still not fallen anywhere near their historical relationships with incomes. If the inflation that is currently brewing in the system starts making its way into interest rates, the affordability evaporates like propane on a hot summer day. 

Therefore, the poor kids who followed their parent's advice and stretched on the initial loan payment will have an unpleasant surprise. They just might find that not only does their house not increase in value, but because their original loan was taken with historically low interest rates, there is no refinancing down the road to give them a cash flow buffer. Meanwhile, they might just spend a huge chunk of the next 30 years paying far more than they would to rent an equivalent place--assuming they keep up with the payments.

Oh, and for the "equity" argument. The savings resulting from the difference in rent versus buying suits me just fine as equity as long as renting remains far cheaper. 

In short, I think this "affordability" index is doo doo, and I am not going to buy anytime soon. 

Report this comment

Featured Broker Partners