Those eager to become homeowners have reason to cheer the home-price drops seen in many local housing markets as a number of areas have gotten more affordable over the past year, according to a study released on Tuesday by the Center for Housing Policy.
The amount of income needed to purchase a median-priced home dipped in 161 of 201 markets studied in the report, "Paycheck to Paycheck: Wages and the Cost of Housing in America." Some of the biggest affordability improvements came in the most expensive markets in California, Washington, D.C., Arizona and Florida, according to the center, which is the research affiliate of the National Housing Conference, an advocate for affordable housing.
But the group contends that affordability problems still remain in many areas and, for renters, things have mostly gotten worse.
Even though housing inventories are generally high in markets across the country, Jeffrey Lubell, executive director of the center, said that there is an undersupply of homes that are affordable to working families. Certain workers in high-growth occupations -- including registered nurses, customer-service representatives and retail salespeople -- are still being priced out of homes in many cases, the group said.
Registered nurses, for example, can't afford the median-priced home in 108 markets, a slight improvement from the 114 markets they were priced out of in 2006.
Customer-service representatives couldn't afford the median-priced home in 185 markets in 2007, and office clerks couldn't afford it in 196 markets, the study found. Retail salespeople and food-preparation workers still couldn't afford a median-price home in all 201 markets.
Some economists think prices will drop again this year, but Lubell said that affordability will again improve only marginally in the year to come. The price declines, he expects, won't be enough to "close that gap" between those who can and those who can't afford to buy a home.
Rental housing is generally affordable to a greater range of workers, but rents mostly went up during the year, the study found.
"Rents are further out of reach today than a year ago," Lubell said.
The rent increase was most pronounced in West Palm Beach, Fla., where 16% more income was needed for the same two-bedroom apartment in 2007; fair-market rent for a two-bedroom in the area went up from $911 in 2006 to $1,057 in 2007, according to the survey.
Retail salespeople and food-preparation workers couldn't afford the rent on a two-bedroom apartment in any of the markets studied.
Around the country
According to the study, a median-price home in Merced, Calif., was $359,000 in 2006, requiring an annual income of $122,982 to qualify for that home. But in 2007, the median price was $278,000, and the qualifying income came down 26% to $90,816.
In the survey, qualifying income for a home assumes not more than 28% of household income is used to pay mortgage, property taxes and insurance, and figures in a 10% down payment. Individual and not household incomes are used in the calculations, partly because of the format in which information on wages is available, Lubell said.
Qualifying income needed to buy a median-price home fell 23.5% in Stockton, Calif., and 15.8% in Washington, D.C. Davenport, Iowa, tied with Lima, Ohio, for the least expensive markets in the report, with median home prices of $87,000.
On the other side of the spectrum, it got more expensive to own a home last year in areas such as Birmingham, Ala., where the median-price home shot up from $133,000 in 2006 to $165,900 in 2007. Qualifying income to purchase that median-priced home went from $45,561 to $54,196, an increase of 19%.
Qualifying income for a median-price home also rose 10.5% in Buffalo, N.Y., and 9.3% in the Provo-Orem, Utah market.
Nine of the top 10 most expensive markets in the country were in California. Below are the 10 most expensive areas to buy a home and the median price for each, according to the Center for Housing Policy:
1. San Francisco ($770,000)
2. San Jose, Calif. ($649,000)
3. Santa Cruz, Calif. ($630,000)
4. Napa, Calif. ($585,000)
5.Santa Ana, Calif. ($585,000)
6. Oxnard, Calif. ($528,000)
7. New York ($525,000)
8. Oakland, Calif. ($523,000)
9. Salinas, Calif. ($520,000)
10. Los Angeles ($515,000)
Better rates, too
Many borrowers are also getting a break on mortgage rates lately.
According to Freddie Mac's most recent weekly survey, fixed-rate mortgages were at their lowest in nearly four years.
The price drops combined with the lower interest rates are helping those in the market to buy -- with the safety of a fixed-rate loan instead of an adjustable-rate mortgage, said Dr. Susan M. Wachter, professor of Real Estate and Finance at the University of Pennsylvania's Wharton School. In a fixed-rate mortgage, interest rates don't change over the life of a loan; ARMs usually have a lower introductory rate before resetting to what could be a higher level.
"It's one thing pushing the envelope with a fixed-rate mortgage, it's another thing pushing the envelope when rates can go up on you," she said. While some high-price markets are still not affordable for service workers, at least more might be able to afford a fixed-rate mortgage and prevent any rate change surprises down the line, she said.
According to Wachter's quarterly mortgage payment index, applications for adjustable-rate mortgages dropped 39.6% from January 2007 to January of 2008, while applications for fixed-rate loans jumped 60.1% during the same period.
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