How cheap houses spell bad news
15.03.2011 00:01
Houses look more affordable than ever. But prices will have to fall further before many Americans can actually afford to buy one.
The end of 2010 brought the start of a that left U.S. home prices down from their mid-decade peak. The latest slide puts the price of the average dwelling far below its long-run average as a share of per capita income, according to Paul Dales of Capital Economics in Toronto.
More, please
Housing is "exceptionally undervalued" by this measure, Dales writes. He says houses are trading at a 21% discount to their average price as a multiple of income, going by the S&P Case-Shiller national composite index.
Cheap houses and low interest rates seem to point toward a housing renaissance. A buyer who takes home the median per capita income can acquire the median-priced house while spending just 13% of disposable income on monthly housing bills, Capital Economics estimates. That's .
Yet low monthly payments alone won't be enough to keep house prices from spiraling downward again over the next year or two. The issue isn't what houses fetch now, it's what they might be worth in the near future – and how many people might be able to foot that bill. Both of those numbers look to be headed sharply lower.
Consider that mortgage rates, though about a percentage point above last fall's deflation scare low, remain 2 percentage points below their long-run average. With the bond markets at loose ends about the price to be paid for U.S. fiscal laxity, a further rise in mortgage rates looks likely.
Higher rates raise monthly financing costs, cutting the amount buyers can put toward principal payments – and driving down prices in lockstep. Why step in front of that steamroller now?
The other bad news for house prices lies in weak employment and wage trends and tightening standards for financing – which may help explain who has been buying houses lately.
With banks increasingly demanding substantial down payments, even supposedly affordable houses are a stretch for many. The median sales price of a new house in 2010 was , according to Census Bureau data. That means saving a $45,000 nut, plus closing costs, on the median per capita income of $26,530.
At the average U.S. personal saving rate of , doing so would take 29 years. Even using the household median income figure of $49,777, you're looking at 15 years or so just to get the down payment on hand.
Prices for existing houses, which have been accounting for the vast majority of sales, are lower, which makes the savings math a bit less daunting. Even so, those numbers say the pool of potential homebuyers is not terribly large right now, not with unemployment running near 9% and the labor force thinner than it has been in 26 years.
And so it is that more than two-thirds of existing home sales since last summer were made to cash buyers or investors, while a mere 6% of purchases were made by first-time homebuyers, Dales says.
First-timers accounted for 41% of house sales in 2009 and between 35% and 39% from 2005 to 2008, according to the . The 2009 number was surely boosted by first-timer tax credits, but it's clear that it's not out of line with the recent average.
So like it or not, house prices are going to keep falling until jobs become plentiful, wages start rising and the outlook for rates becomes clearer. That is, until it becomes clear that a good portion of the population can actually afford those affordable prices.
Also on Fortune.com:
It's simple Housing-Automobile-and food have be purchasble by everybody as everybody needs one of each.
IRS number wages in 1988 were 33,500 wages in 2008 were 33,000
average cost for a car in 1988 7K average cost for a car in 2008 17K
average cost of a home in 1988 92K
average cost of a home in 2008 260K
does anyone see the problem?
To understand US economy one has to look at the legislative process that drives the change. In the past 50 years industries created lobbying groups that are de facto legislative bodies. For all practical purposes Senate, Congress and most state and local governments are not accountable to the electorate but to the industries they're supposed to regulate. While the dog-and-pony show of elections is conducted regularly in a seemingly democratic manner, the only choice the voters have is which corrupt politician they want to put in the office.
This situation is not as much a negative reflection on the American electorate, as the socio-political fact that organized greed will always trump disorganized democracy.
We can expect the boom-and-bust economy to continue transfering the wealth to the few who have the means to keep all current - and aspiring - politicians dancing on the their strings.
Be happy with what you've got. You'll have less and less of it with every coming year.
The first thing that HAS to happen before we can start digging our way out of this mess is we have to start taxing outsourcing to began to start playing on a level field, and bring unemployment under control--phase in over ten years--then the banks have GOT to start working with people stuck with loans they never should have made to keep them living where they are--reduce the loan to reflect the actual value of the property and keep them paying--going the foreclosure rout will result in a lower price/value than working with the existing note holder.
Posted By Stan Kerns Greeley, CO: March 12, 2011 6:12 pmAhh, the machine that destroys itself. So this is what collapse looks like.
Posted By S.W. Kellogg, Phila PA: March 11, 2011 9:16 pmDales is trying to talk up a market based on wholly inappropriate data.
To get some insight on measurements of affordability, READ THIS : Ivy Zelman, at the time the housing market analyst at Credit Suisse had seen the bubble forming very early on. There is a simple measure of sanity in housing prices, the ratio of median house prices to income (my emphasis). Historically it runs about 3 to 1, by late 2004, it had risen nationally to 4 to 1. 'All these people were saying it was nearly as high as some other countries' Zelman says 'But the problem wasn't just that it was 4 to 1. In Los Angeles it was 10 to 1 and in Miami it was 8.5 to 1. And then you coupled that with the buyers. They weren't real buyers. They were speculators'
SOURCE:
The following also provides some insight...
Home "ownership" hit almost 70% during the bubble.
Given current foreclosures, hidden inventory, the worst economic down turn since the great depression, and the current unemployment level; you expect the other 30% to prop up prices? Throw in roughly 10% of Americans living below the federal poverty line, and it doesn't leave very many folks that can afford prices propped up by loose lending at toxic mortgages.
Prices must return to historic fundamentals: income/affordability.
Posted By Robert Ore, Va Bch VA: March 11, 2011 12:14 amHousing "Rennaisance" ... dream on... this is the Black Death, buddy, and it's got another century to play out. You know, it wasn't all that long ago that one one cared about housing. It was no big thing. Get a house, live in it. Die in it. End of story. That's what we're heading back to. Think of something else to care about...something more important.
Posted By John Bailo, Kent, WA: March 10, 2011 5:28 pmReal wages have stagnated or fallen over the last 30 years. We saw what giving mortgages to people who can afford them led to in 2008. You want housing prices to stabilize or increase then wages MUST increase. Otherwise it's a 'race to the bottom'.
Posted By POD, Atlantic City,NJ: March 10, 2011 3:20 pmI think now is a great time to buy -- in fact I am set to close on a house that sold for 430k in 2007 and I am now buying it bank owned for 190k. It will be our primary residence. The monthly payment is significantly cheaper than renting, and then you have the tax write-offs. That fact alone is enough to cause a price floor. Might as well buy now if you can, because I doubt the price/interest rate combo will get much better than this.
Posted By Brannon, Atlanta, GA: March 10, 2011 2:49 pmHow crazy have our perspective gone gone.
The title should be
"Cheap Houses is Good News"
We got the bubble and people priced out with overvalued homes.
Posted By New York City: March 10, 2011 8:56 am43 % of homeowners are under water in my city. More specifcally; that is 86,048 residential properties within my market. Nationally, 11.1 million homwowners are in deep trouble, and the MegaBanks and TARP takers refuse to do the necessary modifications to mitigate this dangerous jugernaut.
Posted By Art Seaborne, Sarasota, FL: March 10, 2011 8:17 amIn the colossal cluster disaster that banking has become, where does one place the blame? The banking industry itself had contributed over $10 BILLION over the last decade on "contributions" to both parties, as to continuously disband and repeal all meaningfull and structurally important regulation. Google the Wall Street Watch Group report. It's all there
Conspiracy to commit fraud, strict liability for failed financial products and instruments, wire fraud and obstruction of justice, RICO - all come to mind.
At we organize a class action against the banks, the ratings agencies and other financial institutions involved in staging the colossal securitization fraud and subsequently crashing the economy and resulting in over $5 Trillion in asset losses in the US alone.
We realize that our own government is effectively a captured entity, so no criminal indictments will be forthcoming. But WE THE PEOPLE will hold the fraudsters accountable.
Who is this Dales guy? Housing is no where near its historical trend, even when adjusted for inflation, housing price curve is still vastly divergent from the personal income growth and inflation curves. There is a reason that it will take the average American 15 years to save up a down payment on a house and it doesn't take a Princeton phd economist to see it.
I mean the only economist with a more housing price friendly take on things is the NAR's Lawrence Yun, whom everyone knows is a clown.
Posted By TheLastGoodIdea.blogspot.com: March 10, 2011 8:00 amThis article ignores the positive aspects of the housing market. Prices for buyers are good and not every mortgage lender requires 20% down now. You can also purchase points.
Houses in my area are going up in prices as is evident from people's tax bill increasing on their home.
Doom and gloom is all some writer's push and this has a negative impact on the housing market as people start to believe it is all true. All hopeless.
We have been shopping around for a home and prices are holding steady in all price areas except those under 150,000.
People who give their houses away are also contributing to the housing bubble in all price markets too as if they refused to sell ridiculously low then people would not lose the equity in their homes.
I understand if people have to sell low for many economic reasons, but remember when you give your house away you are contributing to your neighbor's house value declining as assessors based their evaluations on "recent sales" in the area.
If people can..(not everyone can so I understand) they should stay in their homes if they are able to or stand firm on a fair price.
People who give a house away tens of thousands of dollars below what it is worth in a reasonable range who don't need to are aiding in destroying the housing market too.
Everyone knows about the obvious factors such as buying too much house you cannot afford, job loss and all of the political and governmental reasons for the housing bubble.
But what is NEVER talked about is how people contribute to loss of equity by selling low in a neighborhood and basically messing their neighbors over.
Posted By Sam Ann Arbor MI: March 9, 2011 5:23 pmI refinanced my house and bought four duplexes from banks. I rehabitated these houses and rented out to low income families. The returns is at least 10% on the cash flow basis (annual rent/total house cost). It is certainly require lots of hard work that may not work for everyone, but I don't know any other way to make the 10% return.
Posted By Frank from Portlan OR: March 9, 2011 5:02 pmHousing prices need to go even lower because most people can't afford a house. The private sector has shed millions of jobs and the replacement jobs that the economy is producing are nowhere as good as the millions of jobs lost in the private sector. The states and the federal government, after spending like drunken sailors for decades, are assaulting public employees and seeking to strip them of benefits and reduce their wages.
Social services and safety nets are drying up right and left. Taxes on just about everything are going up and up. Food packages are getting smaller and smaller and everything is costing more and more.
Am I alone in seeing the writing on the wall? The housing crises is not ever going to go away, ever. The bankers, Wall Street, big business and the policians are getting fatter with each passing day while the rest of us continue to be on the short end of the stick that is evermore getting shorter and shorter.
This isn't Egypt or some middle eastern Arab country experiencing decades of hopelessness - yet. But give a decade or so and we'll be there.
Posted By Socal, Chicago, Illinois: March 9, 2011 4:31 pmIn our community there are tons of homes short selling for $100,000+ less than they were bought for during the boom. Who ends up making the difference? Is this part of the tax payer bailout for the banks? Because if banks are writing these losses off it's still taxpayer money. Write-off's, as we all know, are another form of state welfare. The short-sell phenom is quite something to behold. The difference between what someone owes compared to what it sells for is massive here.
Posted By Davis, Bend OR: March 9, 2011 4:24 pmI keep seeing the phrase "starter home". Wow. Paint me confused but I bought my house in 1996. I put 20% down. I was asked at the time if I intended to stay at least 5 years because if I didn't, I would likely lose money due to costs, etc balanced against appreciation. Also I had to provide all sort of documents, and my income/debt levels had to be right. Here I am in the house, still, in 2011. Starter? Oh like I'm going to keep buying and selling? Why?
Call me old-fashioned but the idea of a house is that you buy and pay it off so that, when you retire, you have no housing expense. It isn't an "investment" it's a place to live, hopefully cheaply in one's retirement. The train went off the track when we stopped thinking like this and looked at a house like a lottery ticket. When all of this comes back into line, housing will pick up again.
So you can forget the two SUVs in the yard, all the flatscreens, the trips to Disney and the rest of it if you want a house. It's call "sacrifice" look it up. Many of us did.
Posted By Mark, Boston MA: March 9, 2011 2:21 pmI agree that home prices will continue to fall, or at the very least will not rise for a very, very long time. Here's why:
It is a fact that the American rich are getting richer while everyone else struggles a little more every year. Meanwhile, nearly half of Americans continue to support policies that propagate this trend.
Just two decades ago taxes were MUCH higher, especially for high-income folks. After one idiotic tax-cut after another people act surprised that the budget is a mess. Even worse, many believe that the middle and lower classes should bear the brunt of cuts.
It seems the US will continue to undermine its middle and lower classes while funneling more and more wealth to the rich. The financial sector, already about 20% of the economy, will continue to grow as the rich need to put their money somewhere. More and more money will end up there, essentially accomplishing nothing, while the rest of the population fights over scraps.
Posted By kain ny, ny: March 9, 2011 2:18 pmIs house prices at the bottom? This discussion go on and on. The bottom is a very small place, in shares houses, commodities. But you dont need to buy at the bottom to do a good deal. if you need a house and can keep it for years it could be a good idea to buy now or soon. even if there is a risk the price can drop more. Some young cupples decide to split a house and that is a good idea too. look at what the rich do - yes they buy now - be sure they are rich for a reason , they know when to buy -- many greetings from Jacob Schonberg, pt in Poland
Posted By Jacob Schonberg, Danish citicen but living in Poland, and Ukraine: March 9, 2011 1:46 pmA good ole down payment!!! Why not? Thats what we used to do. We saved to buy a house and we had to qualify! We could not buy a house that we couldnot afford. A person making $26,000.00 a yr should not even look at a house that cost $200,000.00.
Posted By Carolyn Lancaster CA.: March 9, 2011 1:43 pmAmerican Corporations abandoned americans and they also succeeded to suppress wages, and often people have to work 39hr/wk temporary positions to put food on the table. Now what, Banks own EVERYTHING, and financial and insurance service industry only sells things to each other. Let's them also pay local property taxes. Foreclosed empty houses and people living in tents picture strikes me more than any other problem in US.
Posted By Sam, NW US: March 9, 2011 1:39 pmI agree there are some holes in this story. My wife and I bought a house in November 2009 with exactly $1,350 out of pocket.
Posted By Chuck, Winchester VA: March 9, 2011 1:32 pmSorry, but this piece is a clear case of the abuse of statistics.
If the mediam home price is $222k, it would logically follow that the price of a typical "starter" home is substantially less.
There is a difference between the median homebuyer, and the median *first-time* homebuyer, in terms of income and in terms of the price of the house they can and do buy.
Most first-time homebuyers qualify for FHA financing, and do not need 20% down. It's closer to 5%, once everything's tallied. A starter home is more likely in the $50k-$200k range, depending upon where you are in the country. In the more expensive areas, first-time homebuyers are more likely to be dual-income couples postponing starting a family to be able to get into home ownership, so it should not take 15 years to save for a downpayment. Even 10% of $200k is only $20k, and that in a likely dual-income market.
Also, people saving money to buy their first home *should* have a higher than average savings rate, whereas the person already in a home and perhaps putting two kids through college might have a lower than average savings rate.
Assuming the average personal savings rate when trying to assess the pain of coming up with a down-payment is ludicrous.
Use some common sense.
Posted By Balto Paul, Bal'mer, Mar'ln: March 9, 2011 1:27 pmThis article overlooks FHA loan guidelines regarding minimum down payments which is 3.5%. The max FHA loan amount in my area is $346,250 and that seems to cover a large portion of buyers out there. Not only that but depending on the city, there are grants and down payment assistance programs that help buyers with that. The two big issues that stifle home buying as I see it are underwriting guidelines that have gone from too loose to way to tight, and the second issue is the current appraisal process that was Federally mandated. It has ended up effecting values due to sloppy appraisals that cost the consumer more pay the appraiser less and don't guarantee quality work. So you end up getting appraisals that come in low and destroy neighborhoods. Look into HVCC and you get it.
Hey Anonymous from 10:16 today, did you actually type the sentence "our government would have more money to put people to work." ?? That's called communism.
Let's start with a reality check! There never was a real estate asset bubble; what existed mid decade was a well engineered artificial inflated asset market fueled by Wall Street designed stated income subprime loans. The underwriting guidelines for these loans "were not instituted by Fannie Mae, Freddie Mac or HUD." As a loan officer for 23 years artificial housing inflation is some areas were as high as 300% from 2004 to mid 2007. Actual real income was not a factor in determining what the affordability of the loan for the applicant and so the ability to calculate the repayment risk was never a consideration on subprime loans. The wealth generated for the real estate market was tremendous, especially for Wall Street Bankers, however "it is what it is" artificial. Reality has set in. The new real estate market is no longer driven by supply and demand but by affordability, and the massive hangover of real housing "DEFLATION." The government is trying really hard to prevent the inevitable deflationary market by bailing out the top 10% of earners or the investor class at the expense of the bottom 90% of the actual working class. Considering that working class wages have been stagnant for the last 20 years, and there is a direct correlation between the value of housing and income in determining successful homeownership, Median home prices need to return to the early 1990's adjusted for real inflation. Good luck Mr. Ben and your Goldman advisors /quantum mathematicians. It is really not that difficult, if housing payments exceed 35-40% of a family's actual income, you have problems…
Posted By Brian, Queens Village, NY: March 9, 2011 1:25 pmThe root cause is long-term stable jobs are gone. It is not because overbuilt, economy not recovering fast enough, income not increasing or income cut, or lost job, whatever. Without long-term stable jobs, the only way in the future to buy a house is save enough, and when retired, buy a house and pay cash in whole. I can image that's the future.
Posted By Rick, New York, NY: March 9, 2011 1:19 pmThat 'savings rate' you cite is a net economy-wide savings rate. It's reduced by the hundreds of thousands of people who do make down payment each year, etc.
If you were counting "saving up, then making a downpayment" or "saving up, then buying a car" as saving, the national savings rate would be a lot more than 5.8%.
Posted By Wilbur, Nonchalanta, KS: March 9, 2011 1:06 pmThe last thing we need is "outside the box" new fangled financing schemes to get people into homes. That is exactly what brought us the meltdown.
The reality is that not everyone is going to be able to afford a home. Coming up with creative ways to attempt end runs around reality and fiscal responsibility might, for a short time, put people into homes that they can't afford. It is a fool's game, and the inevitable flame out is once again going to burn all but those who keep engineering this nonsense.
The best that can be done for the current debacle is to get people working, stop exporting jobs overseas, and focus on our own problems. Basic stuff like a sustainable energy policy, requiring government to live within it's means, and ending the incestuous relationship between big business and big government that results in repeatedly making the rest of us who are paying for all of this the perrenial victims.
Posted By Evan, Orland Park, Illinois: March 9, 2011 12:45 pmWhat is amazing to me (because this is all tied together, in my opinion) is that when we discuss union jobs & public servant's benefits, no one mentions that those are LIVING wages. Those people can afford to live. Why aren't we ALL asking for the same benefits from our own employers? Maybe then we would spend less time lamenting how we can't afford to live the American dream, and more time enjoying the benefits of a good living?
Posted By Laura, Denver CO: March 9, 2011 12:42 pmRay, Rockviile, MD. The 'money' is buying cheap houses to rent back to those who get foreclosed on. They are not buying all those $350,000-700,000 overpriced houses still on the market in many locales. Thats where prices have a ways to fall.
Posted By Jim Palm Beach Gardens, FL.: March 9, 2011 12:37 pmI am not a real estate agent, rather an economist and MBA. Ask yourself, why is "all cash" buying homes now? These are investors speaking with their money. First time home buyers are way down, pulled forward into a 2009 or 2010 purchase with a $8000 incentive. This should tell you something when the people with cash are getting in while the little guy is paralyzed with fear. We may not be at the bottom yet, but we are not far off.
Posted By Ray, Rockville, MD: March 9, 2011 12:25 pmThe fact is that there are no experts today, so people don't know whom to believe. Greed, speculation and lessening of regulation broke the housing market, not poor people in houses. In the Chicago area, housing prices rose steadily with incomes for over 40 years. Even recession years saw, growth of 2 to 3%. That ended after the crash of 2008. Though not the hardest hit region, this was a stable market dragged down with everyone else.
Posted By Steve, Chicago IL: March 9, 2011 12:17 pm" Well, folks, if nobody has jobs then who is going to buy the lower end homes?"
Landlords. People with more money who can afford to make a decent downpayment and and have enough money for the cash flow to keep a dwelling in livable conditions after the property taxes and morgage payment. Depreciation can make it profitable to a landlord to reant a property to someone where they cannot afford to buy it and klvie theren themsleves (minus the probelm of the down-payment). Pre-WW II people used to live in duplexes a lot where the landlord lived on the top or bottom floor and a renter occupied the other floor. Everyone does not have to won a house. especially if you have to move often to keep working.
People need to get used to paying a 20% down payment again. That expectation will take time but it will make for a far more sound housing market. Home prices may fall some more, but that's OK.
Posted By Mark, VA: March 9, 2011 11:58 amone point that seems to be forgotten is that in many parts of the country houses are now selling for far below replacement cost. This is bad news for housebuilders and suggests that the supply of new housing is going to dip substantially, leading in the longer term to a rebound. But only in the longer term.
Posted By Ian Stuart, Frederick MD: March 9, 2011 11:50 amThis article is misleading and has important errors and omissions regarding down payments.
While banks may be asking for larger down payments, many first time buyers can qualify for FHA backed loans with as little as 3% down payment. I bought my first home last year and only needed about $10k for down payment and closing costs.
The writer clearly has not done his homework on the reality of buying a house and how easy and affordable it can be.
Posted By James Fullerton, Sterling, VA: March 9, 2011 11:50 amIf the average household income is less than $50,000, a $220,000 house is not affordable for those average families.
Posted By Mary, GA: March 9, 2011 11:45 amAnother problem not mentioned in the article is income distribution in the US. Whether or not you believe that taxation should be used to stimulate a more equal wealth distribution is irrelevant. We have been and continue to move into a larger income gap between the most wealthy and the least. To me this means that there are too many middle class homes out there and many are located in regions that are not good for employment. Unless something changes this trend, middle class housing will continue to lose value. Eventually, I suspect that many unsold properties will be demolished and smaller, more affordable ones may be built to accommodate reality.
Posted By Joe, Philadelphia, PA: March 9, 2011 11:37 amAt what point is "outside the box" no longer outside? Aren't you just inside a bigger box staring outside a smaller one? Ponder that metaphor pal...
Posted By P, Mainstreet USA: March 9, 2011 11:19 amBe wary of comments from people in the real estate game. You will hear "now is a great time to buy". Well, they also said that every year for the last 20 years and counting because that is how they make money. I think of it this way: If people are not flocking to buy homes now, even when interest rates are and have been at record lows for several years, then who is left to buy the existing homes when interest rates rise? Answer: No one, UNLESS jobs and incomes start rising significantly, just as the author states. That could be years away or worse. In the mean time prices in many markets will likely shrink significantly. Why would anyone who needs a large mortgage to buy a home, purchase one now? They risk foreclosure or losing all of their downpayment if they are forced to sell do to income reductions, transfers, career changes, etc. These are things that are happening everywhere in the US today. Even the stabilizing affect of government jobs is being hit. The immobility of home ownership is a huge problem in today's world. NOW IS NOT THE TIME TO BUY.
Posted By Joe, Philadelphia, PA: March 9, 2011 11:19 amThis article is way off base. The driving factor is the HAI, which clearly shows that housing is more affordable now than anytime over the past 50+ years. When a house is priced too low, there is a bidding war on it which drives the price back up. So as long as the index shows that consumers can EASILY afford these homes, the bidding wars will always happen when a house is priced too low. Also,87% of homebuyers nationwide are using FHA financing, which only requires a 3.5% down payment. So the whole down payment theory is way off as well.
Posted By John - Ann Arbor, MI: March 9, 2011 11:06 amEveryone can't be a boss, everyone can't go to college and everyone doesn't need to own a house. It is a lot of responsibility to own a house. If the gov't wants everyone to own a house then go build gov't housing. Oh wait, that has already been done and it doesn't help.
Posted By Jeff: March 9, 2011 10:48 ammany americans aren't responsible enough to own a house. Lower housing prices is less taxes to the gov't.
Posted By Jeff: March 9, 2011 10:45 amAll seems in accordance with the traditional way to me. If the median home price is $222,600, then starter homes/condos can be had for much less. The traditional homeowner is someone who finishes college, gets married, works and saves up a downpayment for five or ten years, then buys a starter home. Nothing in the figures cited in the article suggest that this is any more problematic for today's prospective homebuyers than for previous generations. If one is a few years further along in life, with some savings and ready to trade up from a starter home to that $222,600 median home, then there should be someone willing and able to buy the person's starter home if the economy keeps on slowly recovering.
Posted By Lorenzo, Atlanta, GA: March 9, 2011 10:39 amIt is NOT all doom and gloom. Existing home sales are up and the affordability index is at levels we have not seen in years. In PHX AZ it is cheaper to own than to rent the same comparable home. Whoever wrote this article is misinforming minimum down payment requirements. Interested in PHX AZ call Mike 606-435-7510
Posted By Mike Maccagnano Phoenix ,Az: March 9, 2011 10:31 amActually cheap housing is the American dream. Back in the day you could afford a nice house with one income. 20% down, 2.5 times annual income, houses that appreciated slowly but steadily....thats good for the country. Prices are still artificially high and that is bad.
Posted By Jon West Chester, PA: March 9, 2011 10:27 amThe mid decade peak was a facade...instead of reporting that homes are down 21%, why not instead report that homes are still XX% above their norm before the easy credit years.
Most people are fools to buy homes at these prices. We all know that the majority of people will be indebted for their life (which is what the banks want), in paying off a home.
Posted By James, Arlington VA: March 9, 2011 10:24 amThe "American Dream" is attainable you are just going to have to be more creative to obtain it. Thinking outside the box is what it takes today.
Posted By J, Cincinnati, OH: March 9, 2011 10:20 amI strongly disagree with the author of this article. There are many false statements. Rates will surely go up that is inevitable. There are many programs out there to help home buyers such as down payment assistance. FHA loans only require 3.5% down payment. I am a mortgage lender and the average FHA rate that I have been closing recently is a 4.75% fixed. It is a great time to purchase a home and by writing these articles you are only hurting the situation buy discouraging potential homebuyers from making a purchase. In fact I don't think that there could be a better time to buy, when rates jump back up to 6% or better the monthly mortgage payments will be much further out of reach for the average home buyer.
Posted By Todd Coon Rapids MN: March 9, 2011 10:20 amHome prices are going to fall further, but only in areas that resisted earlier loses like the East Coast.. Stable jobs and relatively high income, combined with a lack of speculative highly leveraged purchases in these areas resulted in less foreclosures, but now the new up and coming and in demand areas are dirt cheap. Some Markets in California fell 70%.. you think there is another 25% drop there? These markets have bottomed. Homebuilders are already overweight in these areas.
Posted By Brian, California: March 9, 2011 10:17 amWe just need bigger tax breaks for the rich! lol
Look our problem is that obama tried to hard to push an unafordable agenda and it scared people into voting republican during the midterm elections. So to make up for that he gave everyone a tax break. If he had allowed the bush tax cuts to expire we would be headed to prosperity because our government would have money to put people to work. What good does a tax break do to people who dont even have jobs?
Steve in Maine. Thanks for the excellent report. Up to date data to boot!!
Posted By Tim in Michigan: March 9, 2011 10:12 amWhat many seem to forget is the jobs - as our illustrios VP Joe Biden said "Those 8 million jobs are not coming back". Well, folks, if nobody has jobs then who is going to buy the lower end homes? Lets see, take out 8 million taxpayers from the federal income coffers, place them on welfare/food stamps.. hmm.. Even a minimum wage job is better than no job, so people could barely support themselves, but with this Obama-nation we are in now will never see those 8 million jobs replaced. Until those are addressed, and people get back to work then the housing market will contine it understandable slide.
Posted By Jack Richards: March 9, 2011 10:10 amAmerica is a VERY unfriendly country to small business (mom/pop's type). The taxes, and all the other impositions by the government on anyone who DARE to create a tiny job even selling lemonade at the corner, are more than ridiculous. They are death blows to any small entrepreneur who might want to start something perhaps in his backyard/garage. All the big corporations made their billions on the American consumers and got the hell out of the country. SO NO JOBS are left for American consumers. What are they to do if this tax oppressing government don't give people a break to start producing their own jobs? The throwaway society has to learn to recycle their broken TV's & vacuum cleaners. Who would you find to fix them? NO ONE! WHY???
Posted By Rosa Close, Washington DC: March 9, 2011 10:01 amThis is just part of the economic cycle. Way too many people owned houses pre2008 than could really afford to do so. the cost of owning a house is more than it's mortgage payment and property taxes. Mortgage lenders contributed to this by approving anyone with a pulse; they were not the only cause of too many people owning houses that they could barely afford. Since they sold the loan as soon as it was made they made money on the tranaction. Consequently people did not have to come up with much of a down payment; now the market was swung in entirely the other direction.
A house is a place to live. It's not a piggy bank, an investment, or a way to save for retirement. If you have enough money, buying a house is a good move becasue you stabilize your future housing costs by doing so. first time buyers would buy a condo with the idea that it would appreciate enough in one or 2 years to have their downpayment for a single family dwelling by jsut selling their condo. Painless downpayment generation instead of saving up a downpayment for what they really wanted to buy. Well, the painless part is over.
Posted By Pat Savu Maplewood, MN: March 9, 2011 9:46 amI just wrote an article about the housing values and what they mean to the home owner, home seller, and home buyer.
I do see a lot of investor activity below $100,000 in our market. I'm also starting to see REALTORS buying up properties again as investments as many are ready to rent and cash flow from day 1.
Posted By Brad Officer - Jacksonville Florida: March 9, 2011 9:09 amWhile no one has a crystal ball, I would gladly take the current rates on a 30 year fixed even if house prices were to drop in the future because of rising rates. Just do the math on a 30 year loan with a 10% difference in the house price and a 2% difference in the interest rate. Which scenario pays less over 30 years? The lower rate, but more expensive house does.
Posted By Mark, San Diego, CA: March 9, 2011 9:09 amHousing prices have already crashed through the floor but they need to go even lower before most Americans can afford them is the theme of the story.
Isn't that just an indictment of how underpaid/underemployed "most" Ameican's are than anything else?
So much for an "ownership" society when the bulk of the society can't afford to own very much. Perhaps it is just time to wake up from that "American Dream" of home ownership and just accept that it isn't attainable before that illusion turns into another nightmare. So long as the fundamental problems of sufficient employment as high enough wages are not addressed (and that problem has received far too little attention in this meltdown) the alternative is a repeat of financing based on a house of cards. And when the inevitable crash comes we all get sucked down once again -- all, once again, except the banks and institutions "too big to fail" that get proped up with taxpayer money so they can keep their doors open and pay out their obscene salaries and bonuses to those engineering this cyclical catastrophy.
Wake up people. The "dream" is dead.
Posted By Evan, Orland Park, IL: March 9, 2011 8:24 amWe are in a horrible cyclical situation. Especially since there are no popular ways to fix this problem; because: 1. People have fooled themselves into believing that they are an island and they don't need or should care little about their neighbors. 2. Subsequently, people don't realize that we are all on the Titanic when it comes to housing; meaning you can't save part of the ship... you have to save the whole thing. However, the thought of helping people we believe don't deserve it makes most people say, "I'd rather go down with the ship!" 3. In the era of austerity, the odds of politicians sticking their necks out to help has been reduced to 0%.
So in the end, the rich (the people who are buying these houses with cash) will benefit, and the middle and lower class will pay.
Posted By LJ, Lorton, VA: March 9, 2011 8:05 amI couldn't agree more. And if investors continue to buy the housing, they still have to charge rents that people can actually afford too. Maybe my family is an exception but we have taken a pretty big income hit over the last 3 years and things don't look like there getting much better. There is a significant possibility that republican austerity plans will lead to a job loss for myself. Hopefully by then the economy will be good enough to get my wife hired for a real job instead of insufficient freelance work. We were home owners for many years until the crisis forced a move, and we still have good credit but it looks unlikely that we will ever be home owners again. The price crash eliminated any downpayment while child care costs and income drops have caused increased debt and nothing left over to save for the next several years. Basically, I'm saying that I think there is a large group of college educated middle aged folks, like us, that normally would be buying homes but now can't and very well may never again.
Posted By Joe, Philadelphia: March 9, 2011 7:54 amThe assumptions for monies needed for down payment and closing costs are too high. Assuming the borrows are buying a house for 225 K and gross 6000k a month in my market, they could purchase a home with 10-12 K. It is still doable !
And depending on the location they may be eligible for a down payment asstiance program.
Posted By Ross H Cooper Garnet Valley PA: March 9, 2011 7:31 amHere is a look at the most affordable housing markets in the United States and other countries when measured in terms of median household income, a very important indicator of whether households can actually afford their homes when the economy sours, if it has not already:
Posted By Steve Thompson, Searsport, ME: March 9, 2011 7:03 am « »CNNMoney.com Comment Policy: CNNMoney.com encourages you to add a comment to this discussion. You may not post any unlawful, threatening, libelous, defamatory, obscene, pornographic or other material that would violate the law. Please note that CNNMoney.com may edit comments for clarity or to keep out questionable or off-topic material. All comments should be relevant to the post and remain respectful of other authors and commenters. By submitting your comment, you hereby give CNNMoney.com the right, but not the obligation, to post, air, edit, exhibit, telecast, cablecast, webcast, re-use, publish, reproduce, use, license, print, distribute or otherwise use your comment(s) and accompanying personal identifying information via all forms of media now known or hereafter devised, worldwide, in perpetuity. .Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.Subscribe to Street Sweep:| Company | Price | Change | % Change |
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