Affordability drops, yet sales surge

Posted by: Amey Stone on July 29, 2005

We already know that home prices surged yet again in June. On a national basis, the median price of an existing home (as opposed to a newly built home) jumped 14% in June over the same month in 2004.

What research firm Moody’s Investors Service notes is really amazing, however, is that the number of homes sold also hit a record (7.33 million homes sold), despite a serious drop in affordability.

From Moody’s July 28 Credit Trends report:

Compared to the year earlier period, the index of home affordability plunged by -5.3% in June and sank by -8.8% for 2005’s second quarter. Rapid home price growth, as opposed to higher borrowing costs, gets most of the blame for the latest plunge in home affordability.

Reader Comments

Mike Reardon

July 30, 2005 9:44 PM

Affordable housing in San Mateo, Ca. needs $175,000 income, $646,000 homes are not upper income homes. Average income here, is $83,000 now half the income needed to purchase a home in the Bay Area.

My yearly income will not even cover afford mortgage payments, let alone tax and insurance. I am retired and now live in a nice (BMR) Below Market Rate, city mandated program, apartment, the rent is $1200, my family income is $35.900.

The thing is that, my (BMR) rent, dropped last year. Even as San Mateo, home prices last year have gone from the $506,000 to $646,000.

Next year I may need to move from here to another city near by, but apartment prices in the Bay Area, are only now going up, and still not reflecting home prices.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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