The Housing Crisis Is Over - WSJ.com
Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.
This is just more of the usual rah-rah bullshit from the WSJ, always jawboning economic blemishes into invisibility.
What this article misses is that the “housing boom” didn’t occur nationally. It occurred locally, in major urban areas. Places like my home town, Muncie, IN, had a high affordability rating right through the boom. It was places like my current hometown, San Francisco, where affordability plunged to levels like 12 percent. And it’s still low. In fact, it remains quite low for most of California.
We are still in the earlier stages of the great housing bust. Two years from now, re-read this article, and have a good laugh at the author’s expense.
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As nearly as I’ve been able to determine, “affordability” was, as you indicate, only nominally an issue, and then only in certain geographic markets. The primary issue was - and remains - the degree of reality with which both lenders and buyers were dealing in constructing mortgage deals. Both sides, before all the hot air started whistling out of the bubble, were indulging in a fantasy-world, building individual cases for purchase out of willful negligence and ignoring any sort of solid financial basis in the mad pursuit of “the deal.”
Now that most of the hot, overblown inflation has collapsed, and the bubble is cratering, both sides have pulled way, way back - and the lenders are showing signs of receding further still. The requirements for a deal now, from the lenders’ side, are becoming more and more stringent, as they try to prevent any possibility of present and future deals from being anything less than a “sure thing.” Understandable, in a way…but it’s going mean an even greater prolongation of a market “bottom” - when, eventually, “bottom” is reached - we’re not there yet, at least not in the hardest-hit areas.
We managed to escape South Florida - and yes, “escape” is the correct word - with most of our financial hide still on. Mostly, that’s due to our not having bought into the “creative” financing shtick - but also, due to our having rapidly done some serious upgrading and careful pricing. We’re now back in North Carolina (where, on reflection, we should have stayed), where we could pretty easily afford to buy anew - but, at this point we have zero inclination to do so. Reasons: 1) No perceived market bottom as yet, and (more importantly) 2) Potential lenders are being super-conservative in their requirements, and the currently transitory profile of our income means we would pay a heavy premium for a mortgage. There are some other, secondary issues, but that’s mostly it.
So…maybe next year…or even 2010. We’ll see…
i can vouch for the south florida info. we are moving there (retirement) and have been doing research. many pre-forclosures are selling at almost half of the listed price. ouch.
warren buffet is saying “the worst is over” in the credit crunch. take that fwiw. he has been right more often than not.
buffet link
Buffet may be right, but that doesn’t mean that it will help the housing market much. Lending standards have changed, drastically. That’s going to affect the ability of the average consumer to buy a house well into the future, because the truth is, far too many would-be buyers are effectively tapped out, with no savings, high consumer debt, and a bad payment record. Even if the banks have the money, they won’t be loaning it to the likes of them.
It was places like my current hometown, San Francisco, where affordability plunged to levels like 12 percent. And it’s still low. In fact, it remains quite low for most of California.
Saw a blurb on one of the evening TV news progs a while back about this development.
$500,000 for a condo? No thanks.
I’m in one of the bubble areas, San Diego, where the median went from $188k in ‘96 to $517k in 2005. It’s now dropped to $395k. If you took the $188k in ‘96 and applied normal historical appreciation, OR adjusted it relative to the increase in median income, you’d come up with about $280k either way.
The bubble here hasn’t even completely deflated, much less cratered. If it cratered, the median would be down to $250k. There would still be no buyers, since as Bill pointed out, the banks won’t lend to anyone unless they have full doc, a relatively secure job and minimum 10% down.
In my area I recently quoted for the finishes in the public areas of a 260 unit condominium high rise. The building was still under construction. The units as shell space, kitchens cabinets in, appliances, bath rooms finished but the rest of the unit with primer paint only and no floor finishes, were going at a cool 1 mil to start. In six months they had sold 120 units, my guess is by the time the building is complete they will be sold out. Those that have the money will spend it.
I’ve heard SF housing prices are still rising weakly (something like 5% last year) and based on the postcards I get from the local realtors, they sure haven’t dropped in my neighborhood, anyway. SF really is a special case. I certainly do expect to see a drop in prices, but not even remotely like the haircut other places will take. In the meantime, I’ve decided to move ahead with rebuilding the front facade of our house, as my wife has wanted to do for years. With the easy home equity loans off the table, contractors are hungry and unlike a few years ago when we had our master bath redone, they can’t wait to get started and are actually competing with enthusiasm for the contract. Last time it was like we were supposed to feel grateful that they deigned to work for us.
It’s nice to have the whip hand….
Depends on where you are in The City, Toren. My value has dropped from 440k (what a comp in the complex sold for in 2006 at the peak) to 220k (what it would probably bring today, thanks to the foreclosure next door). That’s not a haircut, it’s a scalping.,
Location is it, some places will take more of a hit than others, in my case I have taken an 11% drop in the past 2 years.