Housing affordability bad for move-up buyers

by WOHe

The following is taken from the produced by John Burns Real Estate Consulting.

IRVINE, Calif. – Our affordability grade is a C-, which on the surface looks absolutely ridiculous. With an A- for our JBREC Affordability Index and an A+ for mortgage rates, one might think that affordability analysis should stop there.

However, only 50% of new home buyers traditionally are coming out of an apartment. The other half need a down payment. Here is what is weighing down our overall grade:

  • Equity: Average equity in a home is $82,471, which is a D- (our grades use current dollars to account for inflation over time)
  • LTV: Loan-to-value of 62.5% is a F because of the historical norm of 34.5% (this statistic includes the almost 1/3 of all homeowners who do not have a mortgage), and
  • Income Growth: Incomes have declined 3.9% in the last year, which is the worst year on record.

What does this mean? Affordability has rarely been better for an entry-level buyer, and affordability has rarely been worse for the many potential move up/move down buyers who bought or refinanced their home in the last decade. With this knowledge, and hopefully some more detailed analysis at the local level, you can make great decisions for your business.

Existing homes
The existing home market weakened this month. The seasonally adjusted annual resale activity plummeted to less than 5.5 million homes in December, according to the National Association of Realtors. This is a decline of 15% year-over-year, and a drop of 16.7% since last month. Despite the seasonally adjusted decline, on a rolling 12-month basis sales have improved for six consecutive months, increasing 1.0% this month and 4.9% year-over-year.

The federal tax credit was set to expire on November 30th until it was ultimately extended to Spring 2010. This led to a surge of buyers closing by November, and in December the rush to close was lost. The national median price of an existing single-family home spiked to $177,500 in December, up from $169,300 in November. The recent increase led to a 1.4% year-over-year gain, and marks the first positive growth rate since July 2006.

The Case-Shiller national index, which tracks paired sales, improved in the third quarter, and the monthly 10 and 20 market composite indices both declined compared to last month for the first time since April 2009. Although the indices remain down year-over-year, the rate of decline continued to ease. The number of unsold homes rose to 7.2 months of supply in December, rising above the historical average. Pending home sales volume inched upward in December, and have increased 11% year-over-year. As of the third quarter, 23% of all homes with a mortgage throughout the U.S. were worth less than the balance of the mortgage.

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