Homes are affordable at last!
Even if you’re one of the many people who are scrambling to find cash until payday, now may be a good time to buy a house. Plunging house prices and rock-bottom interest rates on secured loans have made housing across the nation more affordable in the second quarter of 2009 than it has been in the last 18 years, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) released on August 19.
“The increase in affordability — along with the $8,000 federal tax credit for home buyers — is stimulating demand, particularly among young, first-time buyers,” said NAHB Chairman Joe Robson, a homebuilder from Tulsa, Oklahoma, in a prepared statement.
According to the press release:
The HOI showed that 72.3 percent of all new and existing homes sold in the second quarter of 2009 were affordable to families earning the national median income of $64,000, down only slightly from the record-high 72.5 percent during the previous quarter and up from 55.0 percent during the second quarter of 2008.
The NAHB/Wells Fargo HOI is a measure of the percentage of homes sold in a given area that are affordable to families earning that area’s median income during a specific quarter. The NAHB considers a home affordable if a family making the area’s median income would devote no more than 28% of its take-home pay to housing costs.
The winners are . . .
The older, industrial, Midwest cities generally offer the best housing prices. Indianapolis, Indiana, has led the HOI for 16 straight quarters. At the end of July, 2009, nearly 95% of all homes sold there were affordable to families earning the area’s median income of $68,100. Other leaders were Youngstown and Dayton Ohio; and Detroit and Grand Rapids, Mich.
Indianapolis, once again, was the most affordable major housing market in the country during the second quarter. Almost 95 percent of all homes sold were affordable to households earning the area’s median family income of $68,100. Indianapolis has now topped the affordability list 16 consecutive quarters.
Also near the top of the list of the most affordable major metro housing markets were Youngstown-Warren-Boardman, Ohio-Pa.; Detroit-Livonia-Dearborn, Mich.; Dayton, Ohio; and Grand Rapids-Wyoming, Mich.
Several smaller housing markets posted even higher affordability scores than Indianapolis, with Kokomo, Ind. outscoring all others. There, almost 98 percent of homes sold during the second quarter of 2009 were affordable to median-income earners. Other small housing markets ahead of Indianapolis on the affordability scale included Lansing-East Lansing, Mich.; Mansfield, Ohio; Elkhart-Goshen, Ind.; Lima, Ohio; and Bay City, Mich.
New York-White Plains-Wayne, N.Y.-N.J., where just over 21 percent of all homes sold during the period were affordable to those earning the median income of $64,800, was once again the nation’s least affordable major housing market in the second quarter. This was the New York metro area’s fifth consecutive appearance at the bottom of the list. Other major metro areas near the bottom of the affordability chart included San Francisco; Honolulu; Los Angeles-Long Beach-Glendale, Calif.; and Santa Ana-Anaheim-Irvine, Calif.
Among smaller metro areas, San Luis Obispo-Paso Robles, Calif. was the least affordable market, followed by Ocean City, N.J.; Santa Cruz-Watsonville, Calif.; Flagstaff, Ariz.; and Santa Barbara-Santa Maria-Goleta, Calif., respectively.
Some gains are offset by losses
Nothing comes without costs, naturally, and the improved affordability of homes comes at the expense of sellers. Zillow.com reports that the purchase price of more than 30% of all homes sold during the second quarter of 2009 was less than what the sellers originally paid. Zillow.com data shows that the longer a seller owned a home, the more likely he or she was to profit from the resale, but almost everyone who bought within the past five years and sold during the second quarter of this year lost money on the deal.
According to the S&P/Case-Shiller Home Price index, the average U.S. home price has dropped more than 32% from its peak in the summer of 2006. And for most of the second quarter, mortgage rates were historically low, under 5% for a 30-year fixed-rate loan.
Other gains are offset by heartaches
Many home sales in the second quarter were the result of foreclosures. Foreclosed homes are often sold at rock-bottom prices to produce quick sales. According to Foreclosure.com, there were more than 87,000 repossessions in July of this year, approximately three times as many as there were in July, 2007.