The National Association of Home Builders released its latest report recently showing that affordability dipped in the second quarter as several markets saw increases in home prices. The NAHB/Wells Fargo Housing Opportunity Index showed that 62.9 percent of new and existing homes sold between the beginning of April and the end of June were affordable to families earning the median income of $63,900 – down from 65.5 percent in the first quarter. Research by the National association of Realtors shows that the median price for a single-family home in June rose 4.5 percent year-over-year to $224,300; however, price gains are continuing to slow. The median price varies by region and locations with in regions and our median price in Southeastern Michigan is lower than that national average; however, the Mid-west region was one of the regions in the report showing a drop in affordability.
So, what’s going on? Mortgage rates are still at all-time lows; but, with home values rapidly recovering from their depressed values during the recession, many would-be buyers find the brass ring of homeownership is still out of reach. Basically, home prices are rising faster than incomes are rising and few people can afford to buy vs. renting. If you just do the math, a worker fortunately enough to only have to work 40 hours a week (who does that anymore) would need to be earning $30.72/hour to hit the median income figure reported in the HAHB report. Of course, many families have two earners these days and a person with multiple jobs is fairly common, too.
Perhaps a bigger reason for more people not buying houses (especially younger, first-time buyers) is that credit requirements have tightened up some and many people find it difficult to scrape together the necessary down payment and closing costs money. It’s a budgeting issue and maybe an issue of priorities and discipline in their lives. Another factor is that the foreclosure and short sale markets have declined dramatically almost everywhere; so, there are fewer of the fixer-upper bargains to be had. Many first-time buyers got into the housing market through that route.
There are still programs available for first-time buyers who need help getting over the down payment hump; some of them go so far as offering zero-down options. There are also mortgage programs available that supply fix-up money as well as the mortgage money. And, there are grant programs that can help out with down payment money. All of these programs have restrictions and are generally aimed at lower-end borrowers who have relatively good credit scores, but just can’t scrape together the money to buy a house.
Home ownership is a privilege and not a right; however, it is a privilege that comes with strings attached. Those strings are mainly associated with having the maturity, discipline and responsibility needed to take on such a large obligation. Where there is a will to do it, there is a way to be found. People who feel that they are ready for such responsibility should work with a good mortgage person to ascertain what they can realistically afford and then with a good Realtor® to find houses that meet their needs and stay within their budget. I have also advised many younger couples to start working with a financial advisor to set a budget and increase their discipline and accountability.
First time home buyers in particular should keep in mind that, most of the time; these first homes are just that – first homes that they may own for only 5-10 years before they move up. Trying to buy-in to the housing market at the wrong level is another common mistake that many first-time buyers make. Be patient. You’ll get there eventually; but, trying to buy a McMansion as your first home is a big mistake. Buy the best that you can afford, but stay on track with your budget. Housing is affordable if you make it affordable within your income limitations and, over het long run, it always makes more sense than continuing to rent.
