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Housing More Affordable Than Ever?

February 16, 2012 · 35 comments

in Home & Garden, Personal Finance

I was born at the wrong time, at least when it comes to housing.

When my husband and I got married in 1991, there was no way we could afford a house.  I had student loan debt, we had wedding debt, and I had credit card debt from my last 2 years in graduate school.  So, we rented an apartment for the first two years of marriage.  Apartment living really wasn’t that bad, but when I became pregnant, we decided to start our search for a home.

Our first house cost $95,000, and it was a 1200 square foot, 3 bedroom ‘starter’ home.  I believed that due to FHA rules, we could not purchase a home that cost greater than $104,000 (may not be remembering the exact dollar amount). So, we were really happy with the home we were able to find that fell within FHA guidelines.  We were also happy with the interest rate, which was around 8 percent way back in 1993.

Happy with 8 percent?

Why yes!   Just three years prior, mortgage rates exceeded 10 percent on average, and two percent made a big difference in your monthly payment.

Now, fast forward to today where interest rates are less than half of what they were when we bought our house in 1993.

According to my mortgage calculator, our $95,000 loan at 8 percent resulted in a monthly payment of $697 for a 30 year loan.  That same loan amount today would only be $453.  That extra $244 would have covered our car payment back in 1993!

Now, couple historically low interest rates with low home prices, and this economy can be a homebuyer’s dream!!  As a matter of fact, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index, home ‘affordability’ is at record levels.

So, why isn’t the housing market just taking off?

Part of the reason is the restrictions on mortgage loans.  Apparently, the days of offering huge mortgage loans to those that really have no business buying an expensive home are over, at least for now.  Also, the employment rate is still not stellar, and you just can’t buy a home if you are not employed.

How Affordability Is Measured

The NAHB considers a home affordable if it can be purchased by people earning the average median income, which is $64,200.  The percentage of homes that can be purchased based on the median income is then determined, based on recent home sales.  Right now, nationwide, 75.9% of all new and existing homes are affordable to those who earn at least $64,200, which is the highest percentage since the inception of the Housing Opportunity Index (HOI), which was more than 20 years ago.  Obviously, some markets have a higher percent and are more affordable than others.  For example, only 29 percent of the  homes in the New York metro area were considered affordable by those that earn the  median income for that area of $67,400. On the other hand, Kokomo, Indiana homes were very affordable, with 99.2 percent of homes being deemed affordable according to the median income of that area of $59,100.   (If you are curious of how different areas in the nation rank in terms of affordability, check out the NAHB Reference List.)

It is amazing to think about how much easier the process of finding a home is now than it was back in 1993.  Twenty years ago, you almost solely relied on a realtor to give you information on homes that were available.  For financing, you might call a few mortgage brokers or go with your realtor’s recommendation for getting a decent mortgage rate. Today, you can search for a home, compare mortgage rates, and check out affordability indexes all online- 24 hours a day.

So, I wonder, for those readers out there that have some disposable income, what keeps you from either buying a larger home, or perhaps investing in rental property?  According to this info, there may not have ever been a better time in history to purchase a home, so are people crazy for NOT investing in real estate now?   Does this information make you think about your own situation, or are you totally set with the house you live in?  Thoughts?


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{ 30 comments… read them below or add one }

Maggie@SquarePennies February 16, 2012 at 11:32 pm

Yes, homes are affordable, but too many people still don’t feel secure enough in their jobs to buy a home. And that doesn’t take into account the many people who have too much debt to even consider it. Between education loans, car loans, and credit card debt, too many just can’t afford to take on more debt.

We paid off our home mortgage some time ago and are happy with that. We are retired & love to travel. While it might make sense for some in our situation to buy a second home to rent out as an extra source of income, we don’t want to be tied down to that. And if we paid a service to take care of it, there probably wouldn’t be much left after expenses and taxes to make it worth our while. Also you have to know your area very well to know if a home is a good investment for rental. For those with the temperament and knowledge for it, it could be a very good investment!


Kris February 17, 2012 at 7:54 am

I am in the same boat as you Maggie. It is a high-maintenance investment (if buying for rental purposes) for sure. However, it would be a great time to buy if you are purchasing your first house (and don’t have to unload your current home at bargain-basement prices).


The Biz of Life February 17, 2012 at 8:15 am

I bought my first house back in 1981 when interest rates for mortgages were 13-14%. We got an ARM (something I would not do now), and were lucky enough to benefit from falling interest rates. These days interest rates are about as low as they can go and housing prices have fallen dramatically making housing as affordable as I can ever remember. But Maggie hits on the problem in her comments above…… few feel safe and secure enough in their job anymore to make a long-term commitment to a mortgage and property taxes.


Kris February 17, 2012 at 8:24 am

ARMs are a risky thing, that is for sure. Until recent years, I never thought about how one could actually benefit a homeowner though because I had only seen rates rise before then.

Back even when I graduated college, it was quite common for people in the generation previous to stay at their company for 30 years then retire and enjoy a nice pension. So, mortgages were a no-brainer. You guys are right though, you don’t know if you will have your job in 30 days in today’s economy. It would be somewhat scary to take out a mortgage on a single income, unless the payment was incredibly reasonable.


Money Beagle February 17, 2012 at 8:32 am

In 1999 I bought my condo and was pleased that I got a 6.875% mortgage. A couple of years later I thought I hit the jackpot when I was able to re-fi to a 5.25% 15-year mortgage. It’s all about perspective, though I really don’t see myself ever complaining about the 3.375 15-year mortgage we just re-financed into last fall, but you never know!


Kris February 18, 2012 at 9:54 am

Isn’t perspective interesting? I never thought I would refi my 4.75 percent mortgage and I did. A lot of that was because I wanted away from Bank of America though too.

Congrats on the 3.375!!!


MoneyCone February 17, 2012 at 10:11 am

Definitely Kris! Information at your fingertips – gotta love that! But I still think the fees are too high. Most are just junk fees (PMI, pay for not choosing an escrow, Title insurance…). At least the HUDs have become standardized and easier to read.

If you have the money, this is a great time to buy or refinance a house, no question about it!


Kris February 18, 2012 at 9:53 am

I never understood why the fees had to be so high.

I remember when I petitioned for my PMI to be dropped with our first home and it was. That was a great feeling!


First gen American February 17, 2012 at 12:25 pm

I am indeed officially on the market to buy. We are st
Acting the process of operation live with babci. I do feel quite secure in my job though…I would have not done this if I felt otherwise. Too risky.


Kris February 18, 2012 at 9:51 am

Make sure you write about your house hunt! I loved home shopping, it was always fun to go through different houses. It is then that I realized what I really did want, as opposed to what I thought I wanted.


Krantcents February 17, 2012 at 1:23 pm

I think there is something else stopping people from buying! Actually 2 things, stable employment and a fear of further home price erosion.


Kris February 18, 2012 at 9:51 am

Stable employment is a huge problem I think as our job climate has changed so dramatically. Not just in terms of jobs availability, but also because companies are not ‘loyal’ like they once were. People can be axed at any time.


101 Centavos February 17, 2012 at 10:03 pm

Purchasing a rental home in our area is a bit too high risk for us. Homes are quite affordable in our area, so finding high-quality renters is more than a challenge.


Kris February 18, 2012 at 9:50 am

That is a good point 101- the hassle of finding good renters can definitely be an issue.

You can just focus your attention on finding great stocks instead!


Financial Samurai February 18, 2012 at 10:27 am

I have a feeling it’s still very difficult to qualify for a mortgage.

I think it’s a NO BRAINER to buy property now.

I’m refinancing to 2.625% for a 5/1 with the fees loaded in. I JUST refinanced 4 months ago to 3.125%! Why not? Doesn’t take more than 30 minutes of my time, and all i have to do is wait.


Jason February 18, 2012 at 12:07 pm

Samurai – I am curious why the 5/1 adjustable? Personally I would only take out a fixed rate mortgage these days (with fixed rates still available near 3%) as I can only see rates going up from here.

The obvious exceptions would be if I was confident I was going to pay off my mortgage easily in the next 5 years, or was sure I was moving within that time frame. I just refi’d in November to a 15 year fixed of 3.125% even though I am shooting to have it paid off in the next 5 years. I thought about the 5/1 ARM but I love the idea that my rate will never increase in case plans change.


jlcollinsnh February 18, 2012 at 8:35 pm

timely article and it is amazing where mortgage rates are.

I’ve long held that owning a home is a lousy investment, but sometime the lifestyle makes sense. at least that’s what I told myself when I bought ours in 2000. Trying to sell it now and zero takers.

we’ve been dropping the price so far it’s now a push as to wether we just stay in it.

Great time to be a buyer!


Roshawn @ Watson Inc February 18, 2012 at 10:55 pm

I think the risk tolerance of the masses has completely changed. It’s not surprising given what many have been through and the ever-present doom prophecies. I hope things change very quickly, but as the recovery progresses, it will be very interesting what the interest rates do.


Jerry February 19, 2012 at 6:25 pm

I would get into the market again if I could afford it. But, we are stretched too thin as it is with the one property we have. Our tenants pay just enough to cover our mortgage, taxes and insurance. But, if rates keep going down it may lead us to give it a try.


Super Frugalette February 19, 2012 at 10:13 pm

I used to live in Tennessee where homes were very affordable. Now I live near Madison, WI and surprisingly it is expensive. The property taxes in the town we are renting in are 8K+. In Tennessee our property taxes for a new 4 bedroom house were $1,400…5 years ago – this is a big difference.

I think there is also the consideration that people still have underwater mortgages…


Penny Stock Blog February 20, 2012 at 1:18 pm

I would have to agree with the post its a great time to buy a home. Its now or never as far as buying a home goes simply because their are so many places in the country where home prices have become attractive. Thirty year fixed rate mortgage rates are now under four percent. I can remember years back when housing was king long before the housing bust. Everybody had the expection that home prices would always increase. Even myself as far as that go’s almost believed in this fairy tale. And it was just that a fairy tale as long as it lasted. I don’t have the data in front of me but I think their was only one or two years from 1945 to the early 2000’s that national home prices declined. Their were pockets of weakness in texas during the oil bust of the 1980’s but over all prices increased steadly from 1945 to about 2006. One giant bubble


Kris February 20, 2012 at 10:33 pm

Oh I admit that I too always thought housing would go up. I sure have seen the opposite in recent years though. Actually, I just got my assessment last week and my home price dropped yet again.


kathl February 21, 2012 at 2:42 pm

Everyone says now’s a great time to buy, but I have SUCH a renter’s mentality. I’m not even sure I’d buy my home if someone gave me the down payment — I’d rather get a multi uni place.


Kris February 21, 2012 at 4:47 pm

Well, in the end, you have to go with your gut. However, for those first time home buyers that are ready to buy, what a perfect time!!


jlcollinsnh February 24, 2012 at 5:03 pm

HI Kathl…

renting is the best fiscal choice if you have saving discipline. we are currently trying to sell the house to get back to the blissful and more profitable renter’s life.

in fact, in my last post I run the numbers on this, if you are interested.

now is a great time to buy a house, if you want a house. but owning a house is still a lousy investment.


hardie siding February 28, 2012 at 11:26 pm

Thanks for sharing this information this is such a great post. Very valuable and will detailed. I’m interesting to load a house and this article help me a lot.!!


small business loan March 16, 2012 at 3:33 pm

Everybody had the expection that home prices would always increase. Even myself as far as that go’s almost believed in this fairy tale. And it was just that a fairy tale as long as it lasted. I don’t have the data in front of me but I think their was only one or two years from 1945 to the early 2000?s that national home prices declined.


Pay Day Advance UK April 4, 2012 at 7:32 am

Good news – home prices are at an all time low. Bad news – most former ace credit homeowners have now had their credit ruined due to job loss and illegal market manipulation of the crooked real estate speculators. In the case of foreclosure they will be out of the loop for 10 years and even those forced to short sale because of relocations will now have bad credit for 2-3 years afterwards. Why are we being punished with a bad credit rating because of their irresponsible behavior and their inept business practices? If anyone should have a bad credit rating it should be the banks who gave loans to people whom they knew for certain were not qualified for them.


Toronto painters April 24, 2012 at 1:47 am

I’ve just been reading your blog. It is a lot to get your head around and I’m still a little skeptical about some of the ideas, but I commend Policy Exchange for some fresh thinking on the issue. Well worth reading if you have the time.


QUALITY STOCKS UNDER 5 DOLLARS March 28, 2013 at 8:27 pm

Whats happening in the housing market today is simlar to what happened to the housing marketin the early part of the decade.. We have not yet experienced a buying panic Because its still very hard to get a mortgage but that might change. Low prices are very healthy for the housing market because this makes housing more affordable to more people.


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