With historic low prices, in years to come many Americans will look back on 2009 as the year they should have bought a new house
Buying a house in the U.S. hasn't been this affordable in a generation. Not only have housing prices plunged from Miami to Los Angeles, but interest rates are near historic lows. And for first-time buyers who act fast, Uncle Sam will kick in $8,000 toward the purchase.
Interestingly, the most affordable and least affordable housing markets haven't changed much since the housing market was booming a few years ago. Last year, the most affordable housing markets were dominated by cities in Indiana, Ohio, and Michigan, and the same is true this year as well. Midwestern home buyers get the best bang for their buck. And most homes sold in pricey East and West Coast metros remain unaffordable for average earners.
Dennis Torres, executive director of real estate operations at Pepperdine University, said the housing crash and low interest rates have combined to create a once-in-a-generation opportunity for buyers. "People are going to talk about this as 'I could have, I should have' for decades," he said. "If you're confident that you'll stay in the location for seven years and you're confident of your income, don't walk, run."
Housing is at its most affordable level since the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) began tracking affordability in 1991. In the second quarter, 72.3% of new and existing homes sold were affordable to families earning the median income (down a tiny fraction from the previous quarter but up from 55% a year earlier).
Affordability at Record Highs
The National Association of Realtors' own affordability index, which stretches back to 1981, says that this July's level set a lifetime record for the month. Home prices in Northeast metros such as New York—which remains the least affordable metro in the country—have dropped somewhat. But the most significant improvements are in California, Florida, Nevada, Arizona, and other hard-hit markets. In San Francisco, the second least affordable metro with a median home price of $580,000, 26.9% of homes sold in the second quarter were affordable to a family earning the median income of $96,800. That's a big improvement from the same period in 2004 when only 13.3% of homes were affordable for median earners.
Flagstaff, Ariz., the 10th least affordable metro and a popular tourist stop for visitors to the Grand Canyon, is trying to boost affordability by raising the salaries of its residents. It is nurturing the biosciences, renewable energy, and other high-paying industries, said Vice-Mayor Al White.
Dave Romero, mayor of San Luis Obispo, Calif., the third least affordable metro in the nation, said home prices remain relatively strong because the city has been limiting the supply of properties by limiting growth. The affordability ranking is impacted by the many students from nearby California Polytechnic State University living in the area who pull down the median income, he said.
For old-time residents, housing costs can be reasonable. Romero, for example, built his 1,800-square-foot home for $23,000 in 1959. "The real affordability problem is for people trying to buy a new house," he said. "Young families have a really tough time."
Greg Goodnight, mayor of the nation's most affordable metro, Kokomo, Ind., said nice homes aren't for the privileged few in Kokomo. In the second quarter, 97.5% of homes were affordable for families earning the metro's median income of $61,800. It helps that the median home price was just $79,000. A visit to real estate Web site Trulia.com reveals 94 homes for sale in the area priced between $50,000 and $100,000, most of which have three bedrooms or more and a garage.
But job reductions at Kokomo's Chrysler plants have pushed unemployment above 14% and made it impossible for many families to even consider a home purchase. Still, the city remains home to four plants—one stamping and three transmission plants—all of which are part of the new Chrysler.
"You can get a nice home for $60,000 here with nice amenities and a two-car garage," Goodnight said. "The houses are probably just as inexpensive as other Midwestern cities, it's just that we have a slightly larger wage."
Click here to see the most and least affordable housing markets in the U.S.