Betting The House - The Addition
More on the coming housing crisis - and why the entire economy is at risk.
Understanding what this bubble is and what is means to the average American is very important to doing something about it - or at least to prepare for it. Here's what the experts are seeing:
Despite prices, home sales stay on record pace - 3/26/2004
Taking advantage of historically low mortgage rates, house hunters are driving sales toward another record even as home prices remain high, according to several reports available yesterday. Prices for single-family homes in Massachusetts continue to rise, though not at the double-digit rates seen a few years ago. The average selling price for a detached single-family home in February was up 7.8 percent from the February 2003 average. And yesterday, mortgage lender Freddie Mac issued its weekly survey showing that mortgage rates remain near record lows. For the week ended March 25, the average rate for a 30-year fixed mortgage was 5.40 percent, up slightly from last week's average of 5.38 percent. The average was 5.91 percent a year ago. And therein lies the rush.
"I listed a house in Marblehead on a Saturday, and it was under agreement by Monday night," said Mary Jo Milano, a Century 21 broker in Lynnfield. "Afterward, I had so many calls, and people were crying about it. It's just frenzied."
It's also frenzied because demand continues to outstrip supply, according to the Massachusetts Association of Realtors. As a result, bidding wars are regularly breaking out among buyers in the living rooms and kitchens of properties for sale across the state, and sellers are often walking away with more than their asking price.
In Cambridge, Matt Magee, an associate creative director for a marketing firm, wondered if he and his wife had sold their condo too soon. They put it on the market late last year, and as December rolled into January, attendance swelled at their open houses. "We did well for ourselves," Magee said of the condo sale. "I'm really never sure if we hit the top. Now when I hear about this frenzy I wonder if we had pushed the process back two months if we'd have had competing offers."
At first glance, solid housing sales in Massachusetts seem to be at odds with a local economy that's shedding jobs. But Wayne Ayers, chief economist of FleetBoston Financial Corp. , said for consumers who have a job, a house can still seem to be a better investment than the stock market.
"Keep something in mind," Ayers said. "Massachusetts still ranks high among states in per capita income."
Nationwide, the housing outlook is even rosier
In February, the projected annual sales pace for existing homes was 6.12 million, one of the best months on record, the National Association of Realtors said yesterday. Sales have set records for three straight years, and "we could be flirting with another record this year," said David Lereah, the group's chief economist.
The average selling price for a condo in February 2004 was $261,906, a 13 percent increase from the year-ago average of $231,855. The average selling price for a detached single-family home in February was $359,437, up 7.8 percent from the February 2003 average of $333,362.
Like many house hunters, Laurie Sickles and her fiance are anxious to buy a home before mortgage rates go up, which the Federal Reserve has signaled is possible before the end of the year. Sickles, a nurse at Boston University Medical School, said she's stuck between the desire to cash in on low mortgage rates and the difficulty in finding something she likes for $500,000 or less. "I guess I'm angry at myself for not doing something when I was 29 or 30," said the 47-year-old Sickles, who frets about rising home prices.
For the first time yesterday, Massachusetts realtors issued median sales prices, a measure many analysts believe gives a more reliable read of the market. When an average price is used, a flurry of multimillion-dollar purchases can upwardly skew results. For February, the median sales price for a detached single-family home in Massachusetts was $304,200, up 8.6 percent from the $280,000 median calculated for February 2003. The median sales price for a condo in February was $228,000, up 14 percent from $200,000 for the same month a year ago.
Whether prices are measured by average or median, they're too high for Chris Ford, an executive at a local software firm who is ready to bid the Hub adieu. He's been looking for months for a two-family home in Somerville. By Ford's count, he's made close to 15 bids on homes in the $400,000 to $600,000 range, but all have been rejected.
"I'm not hopeful at all," he said. "I'm moving to Burlington, Vt."
Mortgage rates have surged over the past couple of weeks, raising doubts about how much longer borrowing costs can remain near historic lows and prompting many fence-sitters to close on their home loans as soon as possible. "I wish I would have bought a home last year," said Mark Crary, 26, of West Ashley. "The more rates go up now, the more I want to kick myself," he said.
Fueled by indications the economy may be heating up, the average interest rate on 30-year fixed-rate mortgages jumped to 5.95 percent Monday, up from 5.74 percent Friday and 5.62 percent Wednesday, according to HSH Associates, a New Jersey-based mortgage tracker. In mid-March, the average rate was about 5.4 percent, according to the Federal Home Loan Mortgage Corp. The change since Wednesday alone would mean an additional $52.50 a month on payments for a $250,000 loan. Over the 30-year life of a loan, that's an extra $18,900.
Crary, a Kiawah Island Club caddy, said he and his brother are scrambling to close on a home as soon as possible but are getting beaten to the punch by other eager buyers. "It's just hard to find anything that doesn't already have a contract on it," he said.
Calif. Home Sales Surge in March - April 21, 2004
Sales of homes and condos in California surged in March as buyers sought to lock in low mortgage rates, driving demand and sending the state's median price for residential properties to a record $353,000, an analyst said Tuesday. The figure for March represents a 21.7% jump from $290,000 a year earlier and a 5.1% increase from $336,000 in February, according to DataQuick Information Systems. An increase from February to March is normal for the season.
Los Angeles County's median sale price — the point at which half the homes sell for less and half for more — rose 29.3% in March to $375,000, the highest increase in the state. The highest median sale price for the month was $672,000 in Marin County. The second-highest was San Francisco County at $595,000, followed by Santa Clara County at $520,000.
The typical mortgage payment that home buyers committed themselves to paying last month was $1,528, up from $1,295 for March 2003. The average rate on 30-year fixed mortgages in March was 5.38% to 5.59%. Last week, rates averaged 5.89%, the highest level for 30-year mortgages this year, according to Freddie Mac. Consumer prices rose by 0.5% in March, a sign that inflation was picking up. That raised speculation among some economists that federal regulators would raise interest rates this summer.
Inflation wasn't the only thing which caused rates to rise:
Employment Report Boosts Mortgage Rates - April 8, 2004
Mortgage rates climbed this week to their highest levels since early January amid mounting signs that the economy's recovery is establishing deeper roots. The average rate on benchmark 30-year, fixed-rate mortgages rose to 5.79 percent this week, up from 5.52 percent last week, mortgage giant Freddie Mac reported Thursday in its weekly nationwide survey of mortgage rates. This week's rate was the highest since Jan. 8, when 30-year mortgages averaged 5.87 percent. Rates for 15-year, fixed-rate mortgages, a popular option for refinancing, increased this week to 5.12 percent, compared with 4.84 percent last week. For one-year adjustable mortgages, rates moved up this week to 3.65 percent, from 3.46 percent. This week's rates for both 15-year and one-year ARMs also were the highest since Jan. 8. This time last year, rates on 30-year mortgages averaged 5.85 percent, 15-year mortgages were 5.17 percent and one-year adjustable mortgages stood at 3.80 percent.
The nationwide averages for mortgage rates do not include add-on fees known as points. Thirty-year and 15-year mortgages each carried an average fee of 0.7 point this week, while one-year ARMs carried an average fee of 0.5 point.
Rising mortgage rates, meanwhile, are slowing home-mortgage refinancing activity. The Mortgage Bankers Association said refinancing accounted for 57.1 percent of all mortgage applications filed last week. That was down from 62.8 percent the previous week. Signs that the recovery is gaining ground, including a good employment report for March released by the government last week, were factors in pushing bonds rates up, causing long-term mortgage rates to rise, analysts said. Looking ahead, some economists are hopeful that there will be further improvements in the nation's employment picture, which would help to offset higher mortgage rates.
Note the connection between mortgage interest rates and employment. If employment doesn't improve, then will the rates go back down? Certainly, if employment slips, sales will drop. And if sales drop, ...
Mortgage Index Declines - April 8, 2004
An index of mortgage applications fell for a third consecutive week as mortgage rates jumped the most in eight months and refinancing slowed by the most since early December, an industry group said. The Mortgage Bankers Association's index declined 7.2 percent to 1,012.9 last week, from 1,091.3 the week before. The group's gauge of applications to refinance existing mortgages fell 15 percent to 4,126.7, the lowest since 3,567.6 in the week that ended March 5.
So just how bad are the portents?
In recent years, overall home prices have risen dramatically, by 37 percent since 1997 (26 percent when adjusted for inflation). Such increases have raised concerns that low interest rates have spawned a housing-price bubble. In such a case, previous increases in housing prices would leave them so far out of line with fundamentals that they would be vulnerable to falling.
If a national housing-price bubble has emerged, the pace of the current economic recovery could be affected in two ways. First, fears that housing prices could fall may deter families from buying new homes, which could slow home construction. Second, actual declines in housing prices could slow consumer spending by reducing housing wealth. This is important because, as emphasized by Federal Reserve Chairman Alan Greenspan, people have increasingly tapped housing wealth to fuel consumer spending in recent years, helping offset the drag from past stock market losses. [See Monetary Policy Report to the Congress, Board of Governors of the Federal Reserve System, July 2003; Glenn Canner, Karen Dynan and Wayne Passmore, Mortgage Refinancing in 2001 and Early 2002, Federal Reserve Bulletin 88, December 2002, pp. 469–81; and John V. Duca, How Vulnerable Is the Recovery to a Fall in Housing Prices? In Depth, Federal Reserve Bank of Dallas, October 2003, www.dallasfed.org/research/indepth/2003/id0310.pdf.]
How Vulnerable Are Metro Housing Prices?
The more national cycle in unemployment poses less risk to home prices in the Pacific and Northeast areas than did the experience of the early 1990s. However, the situation warrants monitoring, because job growth across major cities has recently been weaker in high-cost, high-tech and manufacturing-oriented cities. Indeed, high-cost cities such as Boston, New York and San Francisco have seen large percentage declines in payrolls over the past three years. Job losses have also been high in the manufacturing-oriented cities of the Midwest and in high-tech cities other than the San Francisco Bay area and Boston, such as Dallas and Denver. Other cities have fared better, notably low-cost cities without high exposure to the high-tech sector, such as Atlanta and Phoenix.
Low-cost cities would tend to mean lower-wage cities, would it not?
In addition, some high-cost cities, such as Washington, D.C., and San Diego, have experienced above-average job growth in the past three years. Nevertheless, both benefited from home prices not being as high in the 1990s as other high-cost cities within their respective regions (for example, New York and San Francisco).
Another cause for concern about San Francisco, Boston and New York is that housing affordability is very low in all three cities. Affordability readings below 100 indicate that families earning the median income in these cities cannot qualify for a standard mortgage on a median-priced home. [See Karl E. Case and Robert J. Shiller, Is There a Bubble in the Housing Market? Brookings Papers on Economic Activity 2003, no. 2, pp. 299–342. The December 2002 data shown were previously published in an article and were based on income data that were subsequently revised. Revisions are unlikely to affect the qualitative interpretation in the text.]
Still, evidence suggests that high-cost areas can thrive if they can attract highly skilled people and adapt to changing economic conditions. [For example, see Edward L. Glaeser and Albert Saiz, The Rise of the Skilled City, NBER Working Paper no. 10191, December 2003, National Bureau of Economic Research, Cambridge, Mass. Also see Edward L. Glaeser, Reinventing Boston: 1640–2003, NBER Working Paper no. 10166, December 2003.]
The 'highly skilled people' referred to seem to be coming mostly from foreign lands lately. I've covered this in previous posts.
While Dallas has taken a disproportionate share of job losses and seen its unemployment rate rise above the national average, its home prices are not that out of line with income. This low vulnerability has limited the risks to Dallas home prices posed by higher unemployment.
Another concern for high-cost areas is that income tax receipts have fallen disproportionately more in high-tech or high-cost states, owing to greater job losses and the greater impact of stock prices on taxable income in these areas. [See Nicholas W. Jenny, The Personal Income Tax: Once a Strong Source of State Revenue Growth Is Now a Source of Budget Problems, The Rockefeller Institute State Fiscal News, April 2003, www.rockinst.org/publications/fiscal_studies/SFN%203-3.pdf.] The nine states that suffered the largest percentage declines in income tax receipts between 2001 and 2002 (adjusted for tax law changes) were all either in the high-cost areas of the Northeast or California or had an above-average presence of high-tech industries.
Along with an above-average wage work force who saw their jobs flee the country.
The budget restraint imposed by state revenue declines will further slow near-term growth in these areas. Given the economic importance of the Pacific and Northeast regions, there is some risk to how quickly the U.S. economy will recover should a downturn emerge in those areas.
Overall, there is little risk of a national housing-price bubble. But in some cities in the Northeast and Pacific states, prices are vulnerable if the local economies weaken appreciably. Still, the situation bears watching, particularly because high-cost and high-tech areas have experienced relatively weaker job growth than the nation in the past few years, and states in those areas have seen the biggest declines in state income tax receipts.
Note the regions involved - hardly can they be termed 'Red States'. There is enough population in those regions, should John F. Kerry capture their votes, to more than offset the advantages enjoyed by George Warmonger Bush elsewhere.
So just how important is 'housing affordability'?
Home Market Boom Showing Some Strain - March 7, 2004
Housing affordability is at record lows in parts of the Southland, and some real estate experts say it could signal slower gains in sales and prices.
Southern California's long-booming housing market is showing signs of strain, with low affordability and riskier loans raising concerns about the sector's ability to be a primary driver of the region's economic comeback. Consumers' ability to buy homes, which has been weakening for some time as prices have shot up much faster than incomes, recently hit record lows in some Southland counties. Such low levels could signal peaks in home prices and sales, economists say.
In addition, more buyers are stretching their finances, contributing to a sharp rise in the use of adjustable-rate mortgages. Although that has allowed people to squeeze into the market with lower initial mortgage payments, it could subject them to much higher payments if interest rates rise as expected. Less-expensive financing, however, isn't enough for many home seekers, especially young families.
First-time buyers — vital to the market's overall stability — made up just 30.6% of home purchasers in California last year, the lowest rate since the California Assn. of Realtors began tracking the data in 1981. First-time buyers provide the foundation for the rest of the market, because their purchases make it easier for existing homeowners to move up. Together, these indicators suggest slower gains in sales and prices.
"We're piling on more and more layers of risk in the housing market," said G.U. Krueger, director of economic research at Institutional Housing Partners, a real estate venture capital firm in Irvine. "The question is, how long can this go on, and what will happen when interest rates rise?"
Most experts don't expect anything close to a downturn of the magnitude seen in the first half of the 1990s, when massive aerospace layoffs and overbuilding resulted in prices plunging 23% in Los Angeles County. The regional economy has become more diversified, with less dependence on any single industry that could lead to severe job losses. What's more, foreclosures and defaults remain under control. "I don't see anything that frightens me or makes me very worried at this point," said Lenny McNeill, a senior vice president at Washington Mutual who oversees residential lending in California and other Western states.
Economists, however, remain concerned about the weak growth in jobs, particularly ones that pay well. If hiring picks up, that would help lift incomes. But that also would spur the Federal Reserve to nudge up interest rates, although no one expects a sharp rise in rates anytime soon. Either way, the outlook points to an emerging slowdown in sales and building activity. Both have been major economic stimulants, especially in Southern California, where the housing market has far outpaced the rest of the nation.
Damned if you have a job and pay higher prices and interest, damned if you don't have a job. Damn!
Many consumers, meanwhile, have tapped their rising home equities for cash to support their hearty spending, adding further fuel to the economy in the Southland and elsewhere in the nation. Anecdotal evidence suggests that the current frenzied pace can't be sustained.
Glenda Estrada, a 29-year-old schoolteacher in Downey, recently bought her first home. After a three-month search that included several fixer-uppers, she settled on a 900-square-foot home on a busy street in Lakewood. The house cost her $295,000. With her stellar credit, she got in with no money down. But even with a low adjustable rate of 4.5% and a financing plan in which she is paying only interest, Estrada's monthly payment soaks up half her income. "It just feels almost unfair that housing is this expensive," she said. Yet Estrada counts herself as fortunate. Some of her fellow teachers, she says, are commuting from as far away as Moreno Valley in Riverside County [a trip of roughly 90 miles one way on California's notorious freeways - ed], where homes are cheaper. Others are stuck paying increasingly high rents.
And we in California are losing teachers thanks to the budget cuts insisted upon by Der Governator.
Nationally, six out of 10 households can afford to buy a median-priced home, based on incomes and mortgage rates, according to the National Assn. of Realtors. For all of California, the minimum household income needed to afford a median-priced home was $94,020 in January, versus $39,090 for the nation, according to the California Assn. of Realtors.
Working how many full-time Wal-Mart-wage jobs is that going to take?
But in Orange and San Diego counties, the affordability rate has dropped to fewer than two in 10. Both Orange and San Diego counties have seen six straight years of double-digit gains in the median price of existing homes. In January, the median resale price surpassed $500,000 in Orange County. "Everybody's stretching to buy as much as they can, or to buy anything," said Woody Harper, an agent at Prudential California Realty in Orange who specializes in the first-time home-buying market.
It is slightly higher in Los Angeles County. Affordability in all three counties is lower than in Silicon Valley.
The difficulties facing first-time buyers worry economists. Renters or new entrants don't have the equity gains that trade-up buyers can plow into their new homes, so they're much more dependent on their incomes. And overall, incomes haven't come close to keeping pace with home appreciation rates.
The big mitigating factor in all this is cheap financing. After ticking up in late summer and early fall, U.S. mortgage rates have since headed back down to near a decade low, spurring more purchase activity. The average 30-year fixed-rate mortgage is 5.59%, compared to an average adjustable rate of 3.47% for a one-year ARM.
In an adjustable-rate mortgage, a loan stays at its initial rate for a set period (typically one to seven years), then converts to a variable rate that adjusts to market conditions. Federal Reserve Chairman Alan Greenspan recently questioned the wisdom of homeowners sticking with traditional fixed-rate mortgages. He suggested that consumers might be better off if lenders offered more alternatives.
As a mortgage holder, I am NOT about to subject the most important investment I have to the vagaries of a greedy investment market!!!
But in Southern California, the question isn't whether there are enough homeowners going with ARMs, but whether there are too many. During the last 12 months, the share of home purchases from San Diego to Ventura financed with ARMs has nearly doubled to 57.1% in January, according to research firm DataQuick Information Systems. That's almost double the percentage nationwide.
Although Southern Californians historically have been more familiar and comfortable with alternative financing plans, the recent increase has alarmed some analysts. The last time the percentage of ARMs increased so sharply in the region was in 1994, but that was triggered by a jump in long-term rates that significantly widened the spread between average ARMs and fixed-rate mortgages. This time around, the spread hasn't expanded. Furthermore, the fact that many more buyers are using ARMs when fixed-rate mortgages are so cheap means that buyers are stretching and in some cases overextending themselves. "The data does indicate that more buyers are skating toward thinner ice, absolutely," DataQuick analyst John Karevoll said.
Wal-Mart wages ain't gonna save the Ol' Homestead, neither!
With some banks, borrowers can choose to pay even less than interest payments each month, which increases the amount of the mortgage. Such financing decisions, analysts say, have implications for homeowners and the overall market. When rates rise, buyers can compensate by shifting to ARMs, economist Krueger said. "The problem is that we have already done this and there might not be much left to shift," he said. "What happens when interest rates rise and people need to have that option? … I'm not concerned about defaults, but I'm more concerned about what happens to transactions when that happens."
"We're from the bank and we're here to reclaim our property."
Why Housing Could Spring a Leak - Apr 7, 2004
It sure looked like good news: On Apr. 2, the government announced that a stunning 308,000 new jobs were created in March (economists were expecting only about 130,000). For the housing market, however, these tidings hit like a ton of bricks. Almost immediately, interest rates started rising, and housing stocks started falling.
KB Homes fell from $80.20 to $76.60 that day and to $75.27 the next (see BW Online, 4/5/04, KB Home: Cyclical No Longer?). D.H Horton, Lennar, and Centex all slumped an average of about 7% those two days before rebounding a bit on Apr. 6.
Are these stocks signaling potential weakness ahead for real estate? You bet they are. While housing experts point to myriad reasons why the real estate market will likely stay robust through 2004, the risk of a serious downturn in the next few years is clearly increasing -- particularly in areas of the country where home prices have risen the most.
THE AFFORDABILITY QUESTION. Any downturn in the market could have major economic ramifications. With home ownership now up to almost 70% of households, Americans are pouring more and more of their savings -- as well as their hopes and dreams -- into their homes. It's people's ability to afford a high-priced home that is directly affected when rates rise, not the actual home price. For now, buyers are turning to adjustable-rate mortgages (ARMs) to find the same interest rate they could once get through a 30-year fixed, says Paul Fine, senior vice-president at GMAC Mortgage. ARMs provide buyers with a lower rate now, in exchange for lenders gaining the option of raising the rate at a set point in the future.
The increasing popularity of ARMS is likely to keep the housing market strong through this year, says Frank Anton, president of Hanley Wood, a Washington (D.C.)-based media company that serves the residential-construction industry. The problem is that ARMs put homeowners at risk of being unable to afford their home in the future if interest rates rise substantially over the next few years (see BW, 4/12/04, "Home Buyers: ARMed And Dangerous?").
Here's a worst case scenario: Today's buyer of a $500,000 home finds that in three years she owes that same amount, but has to pay twice as much to finance it, while she can sell the house for only $300,000. It doesn't take much imagination to see what such a trend would do to the banking industry, consumer confidence, and the broader economy.
WARNING SIGNS. The country is already dotted with pockets of vulnerability. In parts of California such as Silicon Valley, average prices have climbed beyond the affordable range for the typical income-earner. Sklarz points to places like Key Biscayne (Fla.) and South Hampton (N.Y.), where prices have risen the fastest, as potential trouble spots. It's "a pretty good signal" of vulnerability, he says, if prices have gone up more than 150% in the past five years.
Worried about your neighborhood? Watch the local listings for a growing inventory of homes on the market and flattening or falling prices at the high end. That's a leading indicator for the rest of the market, says Sklarz. Keep your ears open for signs of speculation: Is your neighbor buying a house with plans to fix it up and flip it?
Kucera also looks at the rental market, which is weakening on a national level, as a gauge of home-price appreciation potential. If you can rent a comparable home for much less than it would cost to buy it, that's a worrisome sign.
Also, keep an eye on those homebuilding stocks. For now, Wall Street is signaling only more risk, not the reality of a weakening housing market. Luckily, houses aren't like stocks, which are a lot easier to trade. But as mortgage rates rise, fewer people will be able to afford to move up to a nicer house. That's a trend today's home buyers need to keep in mind, even if any weakening in the housing market is still years away.
That's the picture for the American middle class. What does it look like for those who have just started to climb up?
The American dream of buying and owning a home all too frequently doesn't have a happy ending for many low-income families. Despite federal government policies encouraging home ownership among minority and low-income families, more than half of them left their houses and returned to renting within five years, according to a new study by a University of Washington researcher. One third of the families returned to renting in the first two years.
"Home ownership is not a cure-all for low income families without a living-wage job and wage progression. Without those two things, it is not sustainable," said Carolina Katz Reid, who did the research for her doctoral dissertation in geography, which she just completed. "The evidence suggests that low-income families are particularly vulnerable to losing their homes because they are more likely to lose their jobs and they have few resources to fall back on. Mortgage payments for many of these families take 50 percent or more of their monthly income. An unexpected drop in income or increase in expenses can make it impossible for them to meet those payments."
Reid's research also indicated that low-income minority families who managed to hold on to their homes for at least 10 years tended to realize smaller average property value increases than did middle- and high-income whites. Low-income minority families averaged a 30 percent increase in house values over that time period, while middle- and upper-income whites enjoyed a 60 percent jump.
In addition, she found that buying a house does not necessarily mean an improvement in neighborhood quality because most low-income families bought homes in areas similar to where they were renting. Low-income minorities, on average, tended to buy into better neighborhoods, but these areas continued to be significantly more disadvantaged, marked by elevated levels of poverty, high school dropouts and unemployment compared to low-income whites. Reid said that more than half of low-income minority homeowners bought homes in such "distressed" neighborhoods.
Data for her research was drawn from the Panel Study on Income Dynamics conducted by the Institute for Social Research at the University of Michigan. Started in 1968, it collects information from a broad range of 5,000 American families. Reid also conducted in-depth interviews with 55 low-income homeowners, about half of them recent immigrants, living in Seattle.
Reid's research indicated that very few low-income families that return to renting ever buy another house, while the majority of middle- and upper-income families eventually bought again. For low-income families, however, the shift away from owning a house tended to be permanent, caused by life-changing events such as unemployment or divorce, and the associated loss of a wage earner.
Reid's interviews with low-income Seattle families showed that most relied on multiple wage earners whose pooled salaries enabled them to buy a home. Immigrant families in particular had three or four members (both parents and one or two grandparents or both parents and teenage children) working low-paying jobs or part-time jobs to support a house payment.
Four people working several Wal-Mart-wage jobs just to make a mortgage payment, and in a neighborhood most of us wouldn't set foot in during daylight hours. What, then, have the rest of us to look forward to?
Thirty of the Seattle families were affected by the American economic downturn and one or more members lost full- or part-time jobs, or experienced cuts in hours or benefits. Yet, Reid said, these families were buying as much of a house as lenders qualified them for. "It was shocking to see how much they were paying in mortgage payments," she said.
"If a $250,000 mortgage was available they'd take it. Thirty out of the 55 families were paying more than 50 percent of their combined monthly income on their mortgage payments."
"Home ownership is an important dream in our society," said Reid. "But the goal should be to keep families in their own homes and that will require more social support. At the same time, while there is a tendency to move low-income families toward home ownership, there is still a real need for rental assistance and subsidies. Ownership is viewed as a way of repairing neighborhoods and lifting people out of poverty, but what is needed is a greater range of options to meet peoples' needs."
It isn't just the lower-income families that are affected by this housing bubble. Let's look at some statistics for what it takes to own a house in San Diego, already cited as one of the places where incomes are good.
San Diego’s housing crisis - Updated 2/25/04
Increasing housing prices in San Diego
San Diego is the third most expensive resale housing market in the United States. (The most expensive market is San Francisco followed by Anaheim-Santa Ana.) (National Association of Realtors 2/12/04.)
The weighted average price of newly-constructed, single-family homes is $602,232 – a 145% increase over the last 8 years. The average price for a new attached unit is $360,147. (MarketPoint Realty 2/12/04)
San Diego County’s resale single family homes are at a median price of $425,000; the median resale price for condos is $304,000. (SDUT 1/25/04; December median price) $468,450 was the overall median price (half priced over, half under) in January for all existing homes (SDUT 2/26/04) – more than two and a half times the national median. The national median for existing homes is $171,600. (National Association of Realtors, 2/12/04.)
Only 16 percent of San Diegans can afford to purchase a home here, down from 20 percent just over a year ago. (SDDT/California Association of Realtors, 1/18/04). "Employers most frequently cited the high cost of housing as their number one quality of life concern. Most employers felt that the housing market in San Diego was 'broken.' " (San Diego Dialogue Report, April/May 2002)
According to the California Budget Project, the impact of the state’s high costs is falling most heavily on the poor, the vast majority of which pay 50 percent or more of their income for housing.
San Diegans worry about the growing housing crisis more than any other municipal problem, according to a citywide poll. (SDUT 6/14/02, San Diego Organizing Project survey)
Approximately 44 million low-to moderate-income working families in the U.S. pay more than half their income for housing – a 67% increase since 1997. (SDDT/Center for Housing Policy, 11/19/02)
Housing shortage and population growth
"Californians are less likely to own homes than anyone except those living in Hawaii, New York state and Washington DC. If you live in the City of San Diego, chances are that you rent, according to U.S. Census figures released today." (SDUT, 5/23/01)
The California Chamber of Commerce president stated, "We see housing as the bottleneck barrier to future job growth over the next 20 years." (SF Gate 3/14/2000)
Working families consider the lack of affordable housing to be as big a problem as the lack of affordable health care, a benchmark concern that has dominated public policy discussions over the past several years. (KnowledgePlex News 6/19/02, A study by the Fannie Mae Foundation)
Over the last ten years, the number of people commuting between Riverside and San Diego Counties increased by 167%, according to the U.S. Census Bureau. (SDUT 3/6/03)
That's a commute of as much as 100 miles one way - on a single freeway between both counties.
Median home prices in Riverside increased by 17 percent over last year – up to $222,000 compared to $189,000 a year ago. (North County Times 2/20/03)
Apartment shortages and rents in San Diego
Rental vacancies in San Diego have fluctuated between less than one and just over four percent from 1996-2003, according to San Diego County Apartment Association Rental Vacancy reports. The average apartment rent in San Diego is $1,158. (SDDT 7/17/03)
Average rent in the County has increased by over 30 percent since 1996 – from $700 for the average two-bedroom apartment in 1996 to over $1,000 currently. (RealFacts)
Families need to earn more than $22 per hour to afford to rent a two-bedroom apartment in San Diego. (National Low-income Housing Coalition – Out of Reach, 2003)
That's just over the equivalent of three full-time jobs paying the California minimum wage of $6.50/hr.
Incomes in San Diego
SANDAG estimates 40 percent of all jobs in the county do not pay enough to allow a traditional family of four to achieve self-sufficiency.
SANDAG estimates that 172,000 employees, or 13 percent of the work force, earn less than $8.35 an hour. In San Diego, as determined by HUD, the median income for a family of four is $63,400, compared to an estimated $90,000-plus needed to afford a median priced home here. (SDHC and California Association of Realtors)
It may be a good time to buy a new refrigerator. Once they repossess it, along with the house you can no longer afford, they aren't going to take the box. You can then find a freeway bridge under which to relocate it, so that when you have to live in it, the winter rains won't bother you - too much.
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