Despite Falling Prices, Homes Are Still Unaffordable
Yesterday, the newswires were reporting that the decline in U.S. home prices accelerated in February, falling a record 12.7% in the past year for 20 key cities, according to the Case-Shiller home price index released Tuesday by Standard & Poor’s. David M. Blitzer, chairman of the index committee at Standard & Poor’s, went so far as to say:
There is no sign of a bottom in the numbers.
Despite the recent drop in prices, homes are still unaffordable for the average American family. Craig Guillot for Bankrate.com wrote back on April 17 that:
…the median price in many markets is still out of reach for a median-income family, according to “Paycheck to Paycheck: Wages and the Cost of Housing in America,” a study by the Center for Housing Policy, or CHP, in Washington, D.C.
Comparing housing costs in 210 metropolitan areas with the wages earned by workers in 60 occupations, the study found that homeownership is often unaffordable for workers in each of the five-fastest growing occupations — registered nurses, retail salespeople, customer-service representatives, food-preparation workers and office clerks. Registered nurses, who typically have high salaries, were unable to purchase a median-priced home in 108 of the markets.
“Even with the housing downturn, the drop in prices still just isn’t enough for many workers in traditional backbone occupations to afford houses,” says Rebecca Cohen, a CHP research associate.
Guillot noted:
Between 2000 and mid-2007, the median home price soared 64.9% to $229,200. The median income, meantime, rose just 16.6%. For would-be buyers, the math doesn’t work.
Back on April 16, Peter Hong of the Los Angeles Times talked about a recent study conducted by Chapman University’s Anderson Center for Economic Research which forecast further double-digit declines for Southern California home prices. Hong wrote:
A typical Los Angeles County family would have to spend 48.6% of its annual income on mortgage payments and property taxes to afford a median-priced home, the Chapman study concluded. Historically, the mean expenditure for a home in L.A. County has been 35.7% of income.
For affordability to return to that historic mean, home prices in Los Angeles County would have to fall more than 20% further, said Anderson Center director Esmael Adibi…
Sources:
“Home prices fall record 12.7% in past year, Case-Shiller say”
Rex Nutting
MarketWatch, April 29, 2008
“Average Joe still can’t afford a home”
Craig Guillot
Bankrate.com, April 17, 2008
“Foreclosure glut further depresses housing prices”
Peter Y. Hong
Los Angeles Times, April 16, 2008
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