That's why renting looks more and more like an attractive option. My current rent, in a very nice complex with pool, fitness center, clubhouse, etc., is about half of what I would pay for a mortgage payment in a comparable house. And I don't have to mow the lawn or worry about appliances breaking down, etc.

I think there are two kinds of homeowners. Those who can truly afford it. And, those who can't. The ones who can, generally have much less debt than those who cannot. Most folks just have large amounts of debt.
Personally, I have just sacrificed in other areas to afford nicer housing. Mainly on transportation. An eighteen year old car rather than a new one with high insurance and payments. I don't think I'll ever have a car payment and a mortgage payment at the same time. Once the house is paid for, I'll splurge on a really nice car.

Some areas of the country are so much more affordable than others. In San Francisco, we had to live out in the boonies (90 minute commute) to afford a decent house, so we gave up quality time with family to afford a house. In Tennessee housing is so very affordable (2900 sq ft 4 bdrm, 3 bath, 1/2 acre, on a lake, about $240,000, 7 minute commute). You can buy a starter home here for in the area of $100,000. On the other hand when other parts of the country saw huge gains in real estate, we saw small gains in prices at best.

Georgiamomma, you should probably look at family income in relation to average cost of housing. More and more, people are buying based on both incomes. There was a really interesting book that came out a few years ago called "Two Income Trap: Why Middle Class Mothers and Fathers Are Going Broke" that argued bankruptcy wasn't so much the result of "personal irresponsibility" (too many lattes at Starbucks, expensive cars, that line of thinking) but the fact that housing had appreciated so much in this country people are devoting larger and larger percentages of income to their monthly mortgage payment. When those payments are dependent on both incomes, you get into a very fragile situation where if one earner gets sick or loses his job the family's financial security is in serious jeopardy. I think one of the findings of the book was that bankruptcy is most often the result of serious illness.

Anyway, I find it all very depressing, especially when people condemn two-income parents as greedy. My husband and I could not afford to own anything where we live if we bought on one salary. Our choices would be either to rent indefinitely or to buy hours away from where our jobs, family and friends are. Neither is an attractive option.

Sully6, you are right about looking at more than one income - but, even if both partners are working and making the average salary, it still makes affording the average house a stretch. Housing costs have increased so much in recent years and paychecks have not - a 10% increase in housing costs really hurts when you get a mere 3% increase in salary.

Oh, I totally agree with you, georgiamomma. My little sister is 10 years younger than me. I keep wondering how she will ever be able to afford anything once the time comes. My brother, who lives in Atlanta, is having a hard time finding a home in a decent (not spectacular) neighborhood and he and his fiancee make a pretty good living. In his opinion, the housing slump hasn't had much impact in the metro Atlanta area and he is getting anxious about finding something before he is totally priced out of the area. I think looking farther out would be attractive to him if it weren't for the terrible commute traffic.

Cordovamom,
I was wondering if you were from TN when I read your screename. LOL I grew up in Millington. I have a good friend that lives in Cordova though. We are seriously considering heading back that way to settle down once my husband retires from the military. The houses are much more affordable than they are here in Virginia.

I also live outside Atlanta, and we would have moved farther out if not for the horrendous commute my husband would have to make each day. We live in a nice, older (20+ years) neighborhood where houses start around $300,000 - and for our area, we are now considered a "starter" neighborhood; when the empty nesters put their houses on the market, they are invariably bought up by young couples with small children, who are drawn to our area by the good schools.

Ten years ago, I purchased my first home. My income was right at $30k and my debt was $315/mo for a car payment and a student loan. My top price I qualified for was $80k at 8.5%. Luckily I found a house that I loved but I truly don't know how I could have done it today. I guess that's where all this creative financing comes in to play.

When we lived in NoNJ we were REQUIRED to have two incomes to afford our house (a modest house by our area's standards, but with very high annual property taxes), and that was before we had kids! Add in daycare costs post-children and rising taxes - it made the mortgage really tough. Then add in my husband getting laid off. Whoof. Within two years we were broker than broke with no idea how the next month's mortgage would get paid.

So we sold the house in a softening market but since the market had inflated so much during our five year tenure in the house, despite the softening market we were able to make a substantial profit in the sale.

Moved to South Carolina, where we got a BIGGER house for LESS money, with significantly lower taxes, AND a much larger downpayment due to the house sale in NoNJ. Our new mortgage is half what we paid before, and when you add in all the other things that are cheaper - my commute, daycare expenses, etc. - we're doing much better in this new place.

In fact, in two years, when one of our cars is paid off and the kids are in school full time, we'll be able to go to a single income family because of all the money we'll be saving at that point!

I have friends that are looking to buy in NoNJ (they live in Queens). They have spent the past 2+ years saving every penny of their paychecks that doesn't go to rent, utilities, cars and food. They haven't spent a DIME. They now have $100K+ in cash to put down as a downpayment on a house. Do they make a lot of money? I won't lie - it's decent compared to US Labor Bureau's statics. But their diligence is what will allow them to buy a nice house for themselves and the family they hope to raise.

Avg annual pay in 2001 was 36214 while the average home price was 220K and average interest rate was 6.89%. So actually, since interest rates are lowers now *more* people can afford homes than could 5-6 yrs ago. Strange how you never hear that on the news.
Here's a cached link to the income info.
http://www.bls.gov/news.release/annpay.nr0.htm

Here is a link that might be useful: Cached info on home prices

Allboyz,

Yep I'm from Cordova!! The market here this past summer was amazing. I don't think homes sat on the market for more than 2 weeks. It's slowed down a lot now, hopefully it will pick up by the time I have to list in the spring. But I hear what you're saying about housing being more affordable in Tennessee as opposed to VA. We know several military families from Millington that were shocked at how much they can buy here compared to VA.

Back in 2004, I began to believe that home prices in my area, Northern Virginia, had grown beyond anybodys ability to rationalize it. Why 2004? Prices had grown so high so quickly that no homeowner I knew could buy their house all over again at those pricesÂnot me, not my family, not my neighbors, not my friends. Our homes had jumped 120% in value over a five year period and incomes had not kept pace. If anything, we were paying more for self-funded retirements, health care benefits etc. than when we had purchased originally. Yet, most of us still felt like we had won the lottery. Can you blame us? Prices may not go up much more but they wonÂt go down right? Tell that to those of us who bought and sold between 1988-1996 and watched values dip. Some acted on that feeling of new found wealth and took out revolving HELOCS, others took out alternative (and risky) loans to buy bigger and better, some signed contracts to build houses certain their current house would sell, others bought additional properties as short-term investments. Too many breathed a sigh of relief and stopped worrying about their 401k balances. Lots of people just scratched their heads and did nothing. NoVaÂs story is not unlike any of the hot market areas.

An online trip through our Fairfax County tax database shows houses jumping 50K-150K per year in 2003-2005. It didnÂt take a rocket scientist to figure out that affordability would soon bite everybody. Want to clear a crowded bar fast? Just start talking about housing deflation in Northern Virginia circa 2005Âyou can just call me pariah. So, I started reading the media (still in positive spin mode) and following up by doing my own research on the sources they quote. Easy sources to access online include:

-First American/Loan Performance reports that 40-45% of all loans in NoVa were funded by alternative (read riskier) mortgage products in 2005 and first half 2006.
-National City/Global Insight tagged the DC area as 40% overpricedÂthey called us balanced in 2001.
-The Wall Street Journal/Loan Monitor (Smart Money  12/2006) has us at 43% overvalued. These studies key off of median incomes/median homes prices.
-According to our countyÂs website, the median family income is $90K (2004) and 28% of residents make over $150K in family income. There are 0 (as in none) SFHs on our MLS available to the median income family. But heck, let them eat cake and live in condos.
-GMUÂs Center for Regional Analysis has an eye-opening report dated July 2006 called "Definition of Moderate Income in Fairfax County" Under 15% of the current homeowners in one of the richest counties in the US has the income to buy our common garden-variety $750-800K SFH using the traditional 20/28/36 lending standardÂwe have an abundance of homes priced well over $750K. Our MLS has pages of homes in the $900 plus range. To quote the report "Home ownership has become out of reach for many Fairfax County households and as of 2005, households making 120% of income cannot afford to purchase single family housing in the county."
-The National Association of Home Builders Housing Opportunity Index has us at a low 20% meaning that only 20% of the population can afford to buy the median priced home.
- Long&FosterÂs and WeichertÂs (our local powerhouse realtors) websites have pages of homes available for rent which are also for sale. Rents are way cheaper and those rents listed are quite negotiable. My favorite is one listing that says Ârent for $3250, buy for $1.2 million"?!?!

I have a hard time believing that current prices in the DC area (particularly NoVa) are sustainable. How much will hold? Beats me. My personal opinion is that 2003 values will jumpstart the market. Maybe, the real reason our market has slowed is that the comps donÂt yet reflect the marketÂs ability to buy. Maybe, you just have too many sideline buyers like me who no longer see a connection between price and value and wonÂt pull the trigger on a purchase until those elements come back in alignment. I canÂt bring myself to spend close to a million bucks on houses that I played in as a child here.

But, you donÂt ask a bunch of people who think and acted like they just won the lottery to hand back their tickets overnight. The Business Week article (see other thread) is rightÂthe way down will be slow, sticky, and long. By a fluke, we sold in July 2005 at peak and cashed in our lottery ticket due to a job transfer. A year later, weÂre back in the area renting one of those $800K homes for 40% less than it would cost to buy. I canÂt see any other viable choice right now. But donÂt pay attention to me. IÂm just one person with an opinion. Use the media as a launching pad, do the research, draw your own conclusions.

If the nubers are averages you are wasting your time even considering them.
Both income and home prioces are truncated distributions.
No one pays to work and houses never have a below zero value.
Medians are the appropriate numbers to use.
Ther are 9 men in a bar. Each one earns $50,000 a year.
Bill Gates wlaks in.
The average salary of the men in the bar is now around $100,000,000.
The median salary is unchanged at $50,000.

Median income in 2000 was 42151
Median home price in 2000 was 119600
Average interest rate 8%= $877 per month PI (25% of income to payment)

Median income 2005 was 46326
Median home price was 167500
Average interest rate 5.87%= $990.29 per month PI (25% of income to payment)

Just based on these numbers, and believe me I'm not at *all* claiming to be an expert, prices in relation to income have remained pretty steady nationally.

Sully6: I read that book too. Interesting reading.

Everyone else: lower interest rates don't let you get a house cheaper. They let you pay more for the same house!! Hence, housing appreciation.

Just becasue the average home price in an area is $213k, doesn't mean you can't buy a home in that area for $170k.

People just starting out usually buy starter homes(cheaper, smaller) or condos until they start earning more money and also gain equity via real estate appreciation.

This is how it has always been.

And if starter homes are too expensive in a particular area for folks that are starting out, often those young folks move to another area that is more affordable - if they are chasing the dream of home ownership.

angc

The link you posted in your first message doen't contain an "average home price" for 2001. Rather, it lists the average home price for houses purchased with mortgages. A fair number of people pay cash for their homes, you know.

Here's a link to an article from The Wall Street Journal Online from about a year ago. It discusses the NAR's Home Affordabilty Index, which compares the median income of families with the median price of homes, taking into consideration prevailing interst rates. I know the article carelessly uses the term "average, but in fact the Index is based on "median."

According to the Index, home affordability for buyers hit a 14-year low in late 2005. In other words, it was more difficul for typical buyers to purchase a typcial home than it had been since 1991. So I would say georgiamama is spot on when she says "I'm no real estate expert - but as a lay person, it sure looks like the gap is widening."

And according to the NAR's most recent figures (Oct '06), the Affordabilty Index stood at 107.1, a tenth of a point LOWER than in Dec '05.

As the graph in the WSJ article shows so dramatically, houses were much MORE affordable only a few years back.

I wonder if you remove the Top 5 most expensive areas from the list what the affordability rate would be.

Here are a few things that jumped out at me in the article-
"Another major analysis of affordability, by the National Association of Home Builders and Wells Fargo, shows that just above 43% of all new and existing homes sold in the third-quarter were affordable to families earning the median income." (assuming a 20% down and traditional financing?) I'm confused. Is 43% considered low? To me, that figure sounds really great. After all, there have always been trade-up and luxury homes that people were only able to afford after years of appreciation and savings. Why should a person earning the median income expect to afford the majority of houses for sale?

"In 57 of 379 metro areas nationwide, homes were so expensive in the third quarter that a family earning the median income couldn't afford the median-priced home based on traditional lending standards."
So in 85% of the metro areas listed a family earning the median income can afford the median priced home. Again, that's a good thing, right?

What was most interesting was the chart that show the areas where affordibilty has declined the most. If 100 means the mdeian income family *can* afford the median price home, in only 4 of the 6 cities is that no longer the case (really 5 cosidering the 98.4 rating of Cape-Coral Fla).

I would like to see the figures for how many pay cash for homes and the average/median price of those homes. I seem to remember hearing that most multi-million dollar homes are paid for in cash, but those houses are so outside the norm that it shouldn't impact the averages.

I'm not saying things aren't tough in some small parts of the country but for those not living the cities in the "top" 15%, homes are still affordable.

"In 57 of 379 metro areas nationwide, homes were so expensive in the third quarter that a family earning the median income couldn't afford the median-priced home based on traditional lending standards."
So in 85% of the metro areas listed a family earning the median income can afford the median priced home. Again, that's a good thing, right?

I see your point but what if you looked at the population of the metropolitan areas? I suspect that the 57 unaffordable areas also have higher population counts than many (if not all)of the other metro areas. So, even though 85% of the metro areas are "affordable", that doesn't mean that 85% of the metropolitan population can afford to buy. Most likely only 50% of the metro population (or even fewer!) are living in affordable areas.

Exactly jy md. I know I bought WHERE I could afford to buy.

There's affordable housing available... in inner cities!

I used to live in central NJ, a very expensive area. Coworkers who were new to the area frequently complained that housing was unaffordable. Sure, new construction with 4 bedrooms on an acre in a top school district was $700k, but ten miles down the road in Trenton you could get a mansion for $60k. Yes, in a bad neighborhood, yes, in a bad school district. But affordable.

A real-world example... my brother had $125k to spend and wanted a big house within 45 minutes of Manhattan, with a yard for his dogs. He found one. Granted, it's in a pretty rough part of Newark NJ, but it's a gorgeous house with two staircases and two fireplaces (and has appreciated handsomely in value).

I suspect that when people say "affordable housing", they really mean "affordable middle-class suburban housing".

angc

"I'm confused. Is 43% considered low?"

It's considered low because it's quite a bit lower than it was just a few years ago and also low by historical standards.

But you also might want to check out the Affordibility for First Time Buyers Index, which the NAR tracks separately. It stood at only 68.3 for the 3rd quarter of 2006. That's almost a 20 point decline from just three years earlier.

The First Time Index is watched even more closely than the broader Index because the number of first time buyers entering the market is critical to the whole housing market. If trade-up buyers can't find a buyer for their starter houses, then they're not going to be able to move up to their next house, and so on up the line.

In addition to jy md's excellant point about population distribution, also consider that families in the same areas where house prices are lower also are more likely to earn less than the national median income for the simple reason that wages are likely to be lower -- sometimes much lower -- in these same areas. You just can't reach the conclusion "So in 85% of the metro areas listed a family earning the median income can afford the median priced home" without looking into the actual median income for each of these separate housing markets.

Since the NAR Indexes are based on national statistics, trying to break them down into categories, as you have, easily leads to invalid generalizations.

angc

"I'm confused. Is 43% considered low?"

It's considered low because it's quite a bit lower than it was just a few years ago and also low by historical standards.

But you also might want to check out the Affordibility for First Time Buyers Index, which the NAR tracks separately. It stood at only 68.3 for the 3rd quarter of 2006. That's almost a 20 point decline from just three years earlier.

The First Time Index is watched even more closely than the broader Index because the number of first time buyers entering the market is critical to the whole housing market. If trade-up buyers can't find a buyer for their starter houses, then they're not going to be able to move up to their next house, and so on up the line.

In addition to jy md's excellant point about population distribution, also consider that families in the same areas where house prices are lower also are more likely to earn less than the national median income for the simple reason that wages are likely to be lower -- sometimes much lower -- in these same areas. You just can't reach the conclusion "So in 85% of the metro areas listed a family earning the median income can afford the median priced home" without looking into the actual median income for each of these separate housing markets.

Since the NAR Indexes are based on national statistics, trying to break them down into categories, as you have, easily leads to invalid generalizations.

According to this chart, median income has little to do with medial home price. In fact, the income is the least affordable city is about 15 % *less* than in the most affordable.

Least affordable
City State Income Median price % affordable
Los Angeles CA $56,200 $523,000 1.8%
Santa Ana CA $78,300 $626,000 2.6%
Modesto CA $54,400 $372,000 4.1%
Stockton CA $57,100 $310,000 4.8%
San Diego CA $64,900 $477,000 4.9%
New York NY $59,200 $500,000 5.1%
Riverside CA $57,500 $393,000 6.7%
San Francisco CA $91,200 $759,000 6.8%
Fresno CA $47,000 $306,000 7.1%
Nassau/Suffolk NY $91,000 $450,000 7.9%

Most affordable

Metro area State Income Median price % affordable
Indianapolis IN $65,100 $122,000 85.9%
Youngstown OH $52,100 $86,000 85.5%
Detroit MI $56,700 $95,000 85.5%
Buffalo NY $58,300 $88,000 82.9%
Grand Rapids MI $61,500 $128,000 81.6%
Dayton OH $59,800 $113,000 81.2%
Toledo OH $58,900 $115,000 80.5%
Harrisburg PA $64,300 $140,000 79.5%
Akron OH $61,300 $115,000 79.5%
Rochester NY $64,100 $117,000 79.0%
. As far as population, the 2nd largest population in the US in is TX which has cities on neither list. #3 NY has cities on both list. #4 FL- none, #5 IL-none , #6 PA-most, #7 OH-most, #8 MI-most, #9 NJ-none, and #10 GA-none. I'd like to see the entire list with population breakdowns, but I've been unable to find it.

Also, as another poster listed, even within higher priced cities, there are homes more affordable homes if you're willing to compromise.

I think breaking things down into clarifies the issue. Broad generalizations can be just as invalid. Statistics are open to intepretation.

How many times on this board has someone mentioned buying a home for $X and someone posted "I can't build a garage/buy a 1/8 ac lot/remodel a kitchen for $X in my area"?
RE is a regional thing. Then there are micro markets within the region. Simply saying that houses are less affordable now than they have ever been is silly if you look within the big picture. Many of the areas with "rising inaffordability" are simply leveling out to where median income buys median home.
Again, I'm not claiming to be any sort of RE expert. I'm just trying to get a clearer picture and the more research I do, the more I realize I have not been hearing or reading about the RE market.

angc

Remember back in your first post when you said "So actually, since interest rates are lowers now *more* people can afford homes than could 5-6 yrs ago. Strange how you never hear that on the news." Actually, of course, it isn't "strange" at all and you were dead wrong on your claim because you misinterpreted the statistics you cited.

What's your real point with all this? No one denies that many housing markets remain affordable, but it's also crystal clear that more and more people are being priced out of the market and this is especially true of first-time buyers. I notice you didn't comment on how low the Affordability Index (which is based on median prices for starter homes, by the way) has dropped (68.3) for them. If that doesn't ring some alarm bells for you, so be it.

I think the NAR affordabilty figures for 1st time buyers are based on the same flawed stats. I think a few markets are skewing the data on a whole. Don't more people own houses now than ever before? Am I a statistician? No. Am I involved in the RE or mortgage industry? No. Do I have any vested interest in this whatsoever? No, not really.
I don't know why I really care except that this board is beginning to feel like so many others where all you ever hear is "The market is collapsing", "The middle class can't afford to buy", "No one is buying anymore" when the reality for the vast majority of people outside of CA (and portions of NJ and NY) is different.