Posted: 7/11/2005 8:15:28 AM EDT
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news.yahoo.com/s/ap/20050710/ap_on_bi_ge/unaffordable_american_dream Housing Markets Pricing Out Middle Class By JILL BARTON, Associated Press WriterSun Jul 10, 5:35 PM ET The red-hot housing market in booming cities across the country has made the dream of owning a home out of reach, not only for low-income families but also for white-collar professionals. "Many of the overheated real estate markets throughout the country have become unaffordable for the majority of the population," said Jack McCabe, a housing industry analyst in Deerfield Beach. "Many people are paying well over 50 percent of their income for shelter. It leaves no money for savings or sometimes even for recreation." After So Young Kim took a teaching job in Florida, her friends in Chicago gushed that she and her husband would be able to afford twice the house when they moved. Kim had just received a doctorate and a job offer from a university that would double her salary to more than $47,000. But the prices of even small bungalows climbed far beyond what the young couple could afford even when they stretched their target price to an uncomfortable $300,000. So after several disappointing drives around the area and countless Internet searches, they ended up back where they started — in an apartment. Real estate experts warn that housing prices in many markets are too quickly outpacing the incomes of most workers. The widening gap affects families across the country, from Washington D.C. and Rhode Island to Florida in the South and Nevada and California in the west. In California, the situation has long been the worst: Only 17 percent of households could afford a home with a median price tag in April, according to the California Association of Realtors. By May, the median home price in California climbed to $522,590 — more than double the price in most other states. To buy the typical home with monthly payments of $3,067, a California family would need to earn about $122,700 to qualify for a conventional loan. In other high-cost states, the situation is not much improved. The average family in Florida earns nearly $44,000, which fell 26 percent short of the amount needed to finance a median-priced home last year, according to a study by the Federal Deposit Insurance Corp. National statistics show that families can afford a home in many other cities around the country. The typical household earns about $56,323, enough to buy a home costing $250,900 and 133 percent of what's needed to afford the median-priced home of $188,800, said Walter Molony, a spokesman for the National Association of Realtors. The most expensive housing prices can be explained by the same three reasons that have drawn the biggest spenders for years: location, location, location. The 10 most exorbitant cities include warm-weather climates along the coast, such as San Francisco, Honolulu and West Palm Beach, and huge urban centers, such as New York and Boston. To break into these hot markets, buyers are resorting to new and uncertain options for mortgages. "It's really, really tough for the first-time buyer. The only way to just get in the door is to take advantage of the low-interest rates and the riskier mortgage instruments like the interest-only loans," said Leslie Appleton-Young, the chief economist for the California Association of Realtors. Buyers are choosing adjustable-rate mortgages that keep payments low for a few months to a few years, or 40-year mortgages that allow them to stretch payments over an additional 10 years. Fannie Mae, the top buyer and guarantor of home loans, is offering a new program that allows low- and middle-income buyers new ways of qualifying for loans. To help cover the cost of their monthly mortgage payments, applicants can use federal housing vouchers or rent they would receive from relatives or others living with them. "The down payment used to be the issue, but the problem now is that housing prices have climbed so quickly that a lot of consumers are struggling to make their payments affordable," said David Dworkin, vice president for community lending partnerships. In Florida, Kim said she feels the skyrocketing housing prices have left her and many others behind, and that they have no chance of catching up. When she received her job offer, she and her husband excitedly pored through Internet real estate ads, looking at pictures of bungalows and back yards where she imagined their three young children would play. But since they moved into the rental apartment in Boca Raton, they have not even tried to look at any homes for sale. "It seems to me the biggest difficulty is buying the first house," said Kim, an assistant professor of political science at Florida Atlantic University. "Once you have the first house, it's easier to move up to a bigger house," |
One of my colleagues is at USC (Southern Cal), and he bought a nice townhouse in Santa Monica (but nothing fancy or extravagant), a few blocks from the ocean, for a little over $300K in 1999. Now, it is worth about $800K, and he tells me that he has no idea how new faculty can afford to buy anything.  |
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Move away from the ocean. Come to Cincinnati. I'm selling a very nice three bedroom ranch in a top school district. The house is in great condition. The back yard is very private. The roof and furnace are near the end of their expected life cycle but still function w/o problems. In LA or SF I'm sure an equivalent house would go for $300k or likely more. It goes on the market tomorrow for $139,000. I'm moving into a what in California calls a million dollar home. Only out here it costs under $225k |
Starting to see that around here too. You're either aren't poor enough to move in, or you're too poor to move in. Either way, you're screwed. |
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I call BULLSHIT. There are plenty of homes affordable to people of all incomes. The problem, is folks think awful highly of themselves and want to live in houses like they see on MTV and soap operas. Yeah, you might not get a full acre yard, new construction with an attached 2 car garage... "Life is like a shit sandwich... the more bread you have, the less shit you gotta eat" 
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No, I am afraid you are wrong. In my neighborhood a 2500 square foot house just sold for 310,000 dollars. And this aint beachfront property. |
Didn't someone post something about not living near the ocean. Oh wait that was me.  ETA: Seriously though it's all about location, location, and location. My parents just sold their townhouse in Phoenix (another really hot real estate market). They got more than twice what they paid 6 years ago and more than their asking price due to a bidding war. |
Around here ORDINARY homes are going for $350K. I could not buy the house I'm in now if I was buying this year. |
No, I'm right... because where is it written that a person has a RIGHT to live in your neighborhood? You gotta run with what you got! |
| Housing here sucks too! I am having trouble finding a older decent 1500 square foot house in a decent neiborhood with a one car garage for under 220,000. Most houses I am finding in my price range are the kind you bulldoze and start over. You can find afordable housing here if you want to live next to the airport and drive an hour to work both ways. |
Not true here. Median home price is $350K. I could not afford to buy the home I am in right now if I tried to buy it today. Houses just like mine are going for 3 times what they did 5 years ago. Prices are getting insane. |
| I live in a sleepily little suburb in Los Angeles, but my little old shack has climed to at least doubled what I paid for it. My mom's house in working class nieghborhood of East Los Angeles(El Sereno), has climbed to $300,000! I know this for a fact, one of her neighbors just sold a house for that much. My dad originally paid $32,000 for the place back in 1967. Man, where do people get all of this money? Are we headed for real estate bust similar to the one in the early 90s? |
I agree with John_Wayne777. Locally in Pasadena (CA) a small, 2 bedroom house with no land recently sold for over $1 million. And in Glendale (CA) an 800 square foot dump sold for about $800K. We can't afford anything here, that's why we're going to move elsewhere. But I think the market will level off and slide downwards, or hopefully crash. There is simply no way the people that are buying houses can afford them. They just don't make that kind of money. |
Only 1 problem. We live in the Denver area. Everything this article says is 100% true in our perspective. We cannot afford the $250,000 it would take to get a (cheap) home thats not in the ghetto. However, we look at Kansas and MO and drool over the NICE houses that start between 80- $100,000. Now here is the problem....... THERES NO FRIGGN JOBS THAT WILL SUPPORT A HOUSE THAT COSTS HALF AS MUCH IN THAT AREA. We go back to square one, the house might as well cost a million dollars for all the good it does us. Its sad, but the only way I figure we will ever be able to truly afford a house is to work in a high paying area....save...save....save..... and then purchase a place back where it is cheap......live about another 40 years where we are currently.....and then retire to the paid for house in the cheap part of the country. That just SUCKS. |
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Around here a "starter house" is around $500-600K. In fact, the lowest single-family detached house in town is listed at $650K right now. Two bed, one bath, 860 sq ft. It's lunacy. The rents have not kept up with real estate prices, btw. You can rent an equivalent place for roughly half of what it would cost to buy it. |
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Houses certainly are getting more and more expensive, but I have also seen my share of people in my age bracket (mid-late 20's) with the mentality that they must have a new or near new home that has at least 3000 square feet, 3 car garage, etc., etc. In my area housing is pretty expensive, but if you look hard you can find decent sized homes that are older for good prices, especially more towards the country. I bought my first house, 1800 sq ft, 35 years old, 2 car garage, but in good condition and a decent sized lot for 165k. When I talk to some other people my age that are looking for houses (and they make LESS money than I do) they all tell me about the 250k-300k houses that they are looking at. WTF?!?! I never once looked at a house that expensive and I couldn't have afforded it anyway, despite the fact that the loan officers all told me otherwise  .I think there are a lot of people my age nowdays that grew up spoiled by their baby-boomer parents and they can't accept anything less than a 3000 sq. ft. house with a three car garage and a beemer or a huge SUV behind each door. ETA: If you want a REALLY cheap house try looking in North Dakota....of course the jobs I hear are slim pickin's there too
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I'm sure it would be MUCH more. Wonder how much the cheapest SF home costs in the Bay area? The cheapest SF around here is about $450k or so...(and that's not in a very desirable area) |
Where do you live? |
Interesting.... I have a two story 2500+ sq ft home north of KC and it came in at $135,000. It's 20 years old, but then my doors are straight, plumbing don't leak, the walls aren't cracking and my deck hasn't fallen off like some other $300K 3 year old houses I'm hearing about. I have a job and it pays for it. MO isn't nothing but fields you know. |
Sounds great. When will the Navy be basing ships there? I have avoided the West Coast my whole career due to the housing market there. I've stayed East Coast, and generally the more affordable areas like MS, SC, and VA. I make more money than I have in my whole life, and to buy a hose in the Tidewater region of VA, I'd have to live in a crack neighborhood. |
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California central coast, south of SF. There has been some spillover in real estate lunacy to the rural areas within about a day's drive of the coastal urban centers. There have been some big run-ups in prices in the Sierras. And a lot of people who bought a decade or two ago are cluing in to the fact that they can sell their house in CA, buy a place outright elsewhere, and have a lot of money left over. That's driving prices in AZ and NV. |
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No-growth and low growth policies (NIMBYs and environmentalists) do not match the demand side of housing. So we'll need and continue to build freeways to bring workers in from areas that ARE affordable, like the deserts. I think the dynamic will not last. Sooner or later businesses will find a way to move too and take the workers with them to an area where the prices are more affordable, maybe out of state. We have a friend that runs the Delta project at McDonnell Douglas/Boeing and he's moving to Denver. He's not selling his house because he anticipates coming back in a few years. That's the kind of thing that keeps some houses off the market that might ordinarily be available. |
I have seen this first hand as well. A lady I work with moved up to Boise Idaho from San Diego. They sold their house in CA for almost 600K, and purchased a $180 home for $220. When I asked her why shy overpaid 40K, she said that she didn't feel that they where getting ripped off since they made so much money off of the first home sale. A buddy of mine lives in that neighborhood and now everyone there thinks their homes are worth 220 just because that one home sold for it. To me, she just lost a year's wages and didn't even blink an eye. Also, Boise is not a large city. There is a subdivision, and then a plot of farm land, lots of room to develop, but if you ask anyone, they feel home prices will be worth 300K soon. 
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Thanks, I figured it was the San Fran area, but I didn't know for sure. I don't think areas like that will have a correction either if it ever comes. Kinda like the Tahoe area and several resort areas here on the East coast (Hamptons and now some areas in Jersey). Back on the subject, the western suburbs of Philly are getting pretty elevated in price, but my parents are having trouble selling their house. Why? Because its more than 25 years old says the current realtor. The housing market isn't driving out the middle class, their extravagant tastes are. |
I think that plays a role, as well as realtors. The higher the selling price, the higher the commission. When I tried to sell my house, the agent told me "you want to ask 20% more than what it is worth in reality, and if someone pays it, jackpot!!" With the economy doing well, and fuel prices comparatively dirt cheap, a lot of people where buying and building for the last 10 years, especially 30 min - 1 hour away from the city. This fueled higher and higher prices, and a lot of land speculation. However, speculation and inflation of property has been outpacing incomes for some time. Combine that with soaring energy costs, and I think the market has to correct itself sometime soon. I am waiting until next year to buy partially for that reason. I remember when $35k was a nice income here, and decent homes where around $80k all day. Now a decent home is $150k, and a decent income is $45. $100k will get you a shitheap. Not to hard to see the disparity. I have been thinking "bubble" for a couple years now. My opinion only. YMMV and all that. ETA: The people who move to this area from the city overpay all the time and don't think twice. That has helped to jack prices as well. Stupid city folk! |
Ditto, pretty much to the letter, except mines a little order and built with old growth pine (i.e. it's a fort) |
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I see the same thing. I bought a home built in 1979 and it's a well put together home. When I was going through the buying process, my next door neighbor in my apartment complex was a framer and started telling me "horror stories from the construction site". It was one of the main reasons why I purchased a 20 year old home. On the contrary, some I know purchased new construction and their homes are built like crap in many respects. I have a nephew who is 25, he's full of piss and wind. He's been in construction for 3 years now, and he's the lead carpenter for a major construction company. He has a hard time tieing his shoes, but he's the lead carpenter??? He's a hard worker, puts in 70+ a week without complaint, and I'm pretty sure he takes a lot less pay than most of the other guys on the site, so I'm pretty sure they decided to let the "expensive" guys go and keep the loud mouth kid who gets a ton of work done, although his work is crap. Last time I went to one of his job sites, he was the oldest and most experienced guy there. They get a ton of work subcontracted to them because they are cheap. The builders just take the money and run. Most problems don't arise for some time anyway. If you want your trusses square, you gotta pay for it. |
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It is cheaper to rent (long and short term) than to own right now. That should be your leading indicator that this is indeed a real estate bubble that will burst. We're going to have a lot of happy former renters picking up mansions for 300k that sold for 1.2mil. Going to have some really sad, forclosed on families...but that's what they get for being stupid and buying during a stupid time like this. |
Do you really think so? How soon will it burst? |
That depends where you live. In my area rent is actually worse than the rediculous housing costs. I pay less in my monthly mortgage payments than I would renting an apartment half the size of my house in a worse neighborhood. Of course the tricky part is being able to make a 20% downpayment, which I was able to do. |
I really do think so. Have no idea how long it will take. I'd thought it wouldn't last this long. If it wasn't for some creative loans (intrest only, infinity year loans) I think people would've have already stopped buying. I wouldn't give it another 10 years though. Granted, I'm not a realtor or an economist and I didn't sleep at a Holiday Inn last night. EDIT: I should mention that I'm coming from one of the biggest real estate bubbles there is. Southern California. I'm paying a good deal less for a decent apartment that most new home owners are paying for shacks. |
And that is the POINT of this topic. What was once true (your statement) no longer applies. Again, I could not afford the buy the home I am in now today. Prices have tripled since I bought it. Average wages have not even doubled. |
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I think prices will go down, but they tend to go down slowly. People can often live in their house for years waiting for prices to recover. The only scenario in which there's a huge, sudden drop is if both interest rates go up and a recession hits. The more recent buyers are heavily leveraged and on ARMs or interest-only loans, and at the limits of being able to make their monthly payments. Six months of no job and a higher mortgage payment and no buyers could send them over the edge. Me, I refuse to have a $500K mortgage. That's just soul-crushing. |
| HA! You guys think that is bad? My ex was looking for a 1 bedroom apt here in NYC and anything decent was starting at around $400,000. And this is in the East Village, where less than 10 years ago you would avoid because of all heroin addicts laying around...now its all young yuppie couples with their $1500 baby strollers. |
No you are VERY wrong. last year I sold my 3 bed/2 bath Cape Cod (less than 2000 sq ft) on 1/8th of an acre of $325,000. It was the only way I was going to be able to afford the 1950sq ftt 4bed 2.5 bath with 1/3 of acre & a 1 car garage. I bought for the same price. BTW my house was just reappriased 3 months ago at $420,000 - in less than a year prices went up $100K. It's nuts. |