Study: Homes less affordable -- Numbers worst ever

[ckramer]

New figures show Greater Boston housing is less affordable than ever, with a median-priced home costing nearly six times what the average family makes per year.

“Affordability problems are worsening,” Harvard University researchers write in their annual “State of the Nation’s Housing” study, due out today.

The report - which looked at 75 housing markets - found that a median Hub-area home sold for 5.9 times local median household income last year. That’s up from 3.2 times median income in 1994, as well as about two times median income in the 1950s.

link

Well maybe democratic presidential candidates can address this issue.

[nosillies]

1. This article is super scary to me

http://www.usatoday.com/money/economy/housing/2006-06-12-home-prices-usat_x.htm

Imagine if you have had to buy a home in an overvalued area (you got transferred there by work, e.g.), and now someone's about to "price correct" you. You could lose tons of money.

I live in Florida in one of those areas where snowbirds, retirees, and second-home owners drive up prices artificially and kill us normal families who just work for a living and want to live in a decent neighborhood. I swear I live in fear of the day when this bubble bursts, my husband gets transferred again, and we have to sell our house at a loss.

Guess I should be thankful that we actually are blessed enough to own a home, really.

[Tyrone Slothrop]

3. You should be

Thankful, that is.

I'm a young-ish college graduate (ie educated with a decent job), and I don't foresee any possible way in which I will ever be able to afford a house at the rate things are going.

[Igel]

2. They can't address it at a national level.

It relies on local conditions. I'm not sure I'd want the federal government getting that much involved, since the circumstances vary so much from place to place.

Zoning might be part of it, in some places. Houston has no zoning. And still many of the nicer areas close to the city centers are expensive. Not nearly as expensive as in Boston (so zoning might well be part of it), but still too expensive for most people.

Go a few miles away, and things get considerably cheaper. But then you have a longer commute.

A British study in the '80s (or early '90s), working on data for the greater London area, found that for the average middle-class worker housing + transportation costs + time were pretty much fixed. You could spend more money on housing, or devote more time and money to transportion, but the amount you spent per year was going to be about the same, regardless, if you assume time has some value. Don't know if it works out so neatly here, but the trend's the same.

[fasttense]

4. Housing costs is not a local issue

When foreign countries trade with us, the US holds their dollars for them. This is normally not a problem except when there is a huge trade deficit. Under normal conditions, the foreign dollars held by the US equals out to the cost of foreign products. But since the US has such a huge deficit those foreign dollars have to be invested (this is a little simplistic but it shows how the money moves). They were invested in US real estate, thus the housing bubble. Where do you think the money for the housing bubble came from?

If we did not have such a giant trade deficit, we would not have such high home prices. In the end, the middle class worker suffers the consequences of all bad government decisions. They just don't realize it.

[German-Lefty]

5. trade deficit causes housing bubble? or vise versa?

You're saying the trade deficit causes the credit which pushes the housing market. However conservatives argue that foreign "investment" causes the trade deficit. The general fomula from which there is no escape is:
Net Exports = Net Foreign Investment
That is: in order to invest a dollar in the US I first have to sell something to the US to get that dollar; in order for the US to pay back a dollar's worth of debt they have'd have to export something worth a dollar.

The appearant interest rate at which the money is loaned seems low. So I can see the conservative's arguement that the US is considered safe. If we thought the US was pushing its credit limit in order to import goods, we'd expect rising real rates due to risk.

On the other hand I think that the there may be geopolitical games being played which cause some foriegn players to buy US debt even though it may not be "smart" from an investment point of view. Some of it may be the old game of paying tribute (Iraq). Some of it may be other countries wanting to buy leverage over the US (China).

[fasttense]

6. Yeah, I agree with you.

"On the other hand I think that the there may be geopolitical games being played which cause some foreign players to buy US debt even though it may not be "smart" from an investment point of view."

You are right there is something else going on besides just normal investment. I'm not sure what it is. It is definitely tied to political goals.

[dcfirefighter]

7. Federal policies drive real estate speculation

#1- Money creation via fractional reserve banking - private banks lend money into existence
#2- Glut of tax incentives for owning land, benefitting the landowner vs. the potential landowner (the renter).
#3- Weak dollar policy 'increases' the numeric value of assets

So yes, it's a federal problem, it's just more apparent in some places rather than others.

You do have local issues as well, typically zoning ordinances that more or less prohibit building enough housing to match demand. Damn near every place in the country opposes building new housing, unless it can be forced into the high-end through minimum density laws. Of course most 'medium to low' end houses don't pay for the additional drain they have on local finances, especially schools. e.g. a median income family of 4 earns $65,000. Their house might be assessed at $250,000. They'd pay $2500 in property tax, and $3250 in state and local income taxes, while their school district spends $16,000 on their two children.

This isn't a jab at public education, but to point out that, as it stands, there are many factors AGAINST building housing for localities, as well as many other factors that make such housing that does get built very expensive.

I believe that, if all were right in the economic world, localities would be trying to attract families, that very literally people add value to communities. Unfortunately, we let that value go to waste, allowing it to be collected by private hands, rather than socializing that very socially created value. Instead we try to socialize very privately created values (incomes, wages, sales, etc.) and penalize those who build with higher tax assessments.

Federal Solution:
Massive monetary reform (a pipe dream) that spends money into circulation. The Federal government would spend money on public goods, budgeting their creation of money to coincide with increased demand for money - giving such money a stable value, and accepting said money as payment for debts, namely taxes, guaranteeing demand for such money, and thus guaranteeing positive value.
Significant tax reform (a difficult dream) that sharply reduces, and then eliminates those tax advantages that tend to increase the price of real estate. Namely, the mortgage interest deduction, but also the capital gains allowances. These benefit current owners at the expense of future owners, and do not actually encourage homeownership.

Local (and state) Solution:
Convert existing property tax to a land value tax, where the value of the building is exempted (or partially exempted) and the revenue is made up with higher rates against 'unimproved' values.
Remove barriers to development - assure greenspace with public parks and agricultural preserves, rather than minimum lot sizes.

[Sammy Pepys]

8. In the market for a house now, actually...

There are affordable options out there, but their desirability definitely corresponds.

What's very difficult is figuring out where some sellers stand. You have no idea if they're content to wait it out, or if they'll jump on the first reasonable offer they get. One of our friends just sold a house out in the midwest for a little under her full asking price, and she was incredibly happy. But she was perfectly willing (and expecting) to go down 10%-15% if it got the property off of her hands (she would've still had a respectable gain). She had three offers, and none of them even got close to that.

But it is becoming a buyers market. I'd say the average house we've looked at has been on the market for about a month, and it doesn't look like that trend will turn around anytime soon. Buyers do have leeway, and they do have time. Only one house of the 20 or so we've looked at has gone under contract....a few years ago in DC that would've been unheard of. What's still an unknown is what the difference between bids and asks are. That's where the tough sledding is.