Good Year-End News for Homebuyers

There is good news on the housing front for aspiring homebuyers in many markets across the country. This news is different from what has been making the headlines during the past couple of years, all those articles saying that no one can afford a home today.

There is no question that in some markets, particularly those that are growing the fastest, the index of affordability has probably never been lower. In my County in Southern California, for example, the average home costs well over $500,000 compared with a figure of $216,000 nationally. The income required to buy it is substantially higher than the average income for the area. Yet sales are still brisk and homebuilders are still building. How can that be? The obvious answer is that these homes are not being bought by average homebuyers. They are being bought by people with above average income. I'm sure that the same thing is true for most of the markets that are considered over-priced.

The good news is that there are many markets outside the major metropolitan areas. And in those areas housing can still be bought for much less than here. The better news is that over the past number of years, income has risen faster than home prices. This means that the affordability index in these markets has actually gotten better.

You will recall that I have mentioned on a number of occasions that the lending industry has relaxed underwriting standards in recent years. In the old the standards said you could devote no more than 28% of your gross income to housing expense. Today, we routinely get buyers approved when their ratios are well into the 40% class and that has no doubt fueled the demand for in high growth areas. But there are many, many markets where families with average income only have to devote less than 30% of their income to buy an average home.

Bottom line, affordability is a local phenomenon and for much of the country, the average home is more affordable than it was ten or twenty years ago. I should also point out that the average home today is a good bit larger than it was in any previous period. That number is about 2,300 square feet today. How large was the home you grew up in? My point here is that today's buyers are buying a home that was larger than their parents. Obviously, if you would settle for a 1,600 square foot home, it would be more affordable. That flies in the face of reality because buyers want larger homes.

I think that there are some other data that mean good news for homebuyers. First, although homebuying was good for the year, it appears that things are slowing down. Houses listed for sale are staying on the market longer. Also the number of unsold homes at builder tracts has increased. In a supply and demand world, it does appear that we may be entering a different type of market than the one we have been in. All this augers well for new homebuyers.

At this point, it would be good to review some facts, courtesy of The New York Times. At my website www.savvyborrower.com/afford.htm you can see a map of the U.S. showing affordability statistics and how they are changing. For those living in California, Florida, and in the New York City vicinity, you know what you will see. For the others, I hope you find encouraging news here.

Finally, a manifestation of the affordability is its effect on the labor market. In the 1930's people migrated from the dust bowl to California and other states where they could find jobs. Today I think we are going to see a different kind of demographic shift. This one will be a shift in the labor market spurred by housing affordability. I have not yet seen national data yet but the stories I hear are probably more common than you think.

Nissan recently announced their plans to move their U.S. headquarters from Southern California to Tennessee. The children of a friend are moving to Atlanta where they found jobs that pay just as well as their California jobs, but houses cost half as much. My son is moving to Colorado, literally driving a U-Haul truck through a snow-packed pass in the Rockies as I write this. He has the same job, one that requires travel, but he can do it as easily from Denver as from here. Again, housing prices there are less than half of what they are here.

I hope you find this welcome news and that you will write me in the coming year telling me the story of how you bought your home.