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The "affordable" home, redefined
comments (0) December 17th, 2008 in Blogs
Richard Defendorf, contributor
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Even if they haven’t hit bottom, housing prices in some parts of the country have dropped to the point where they are routinely described as “affordable.”
What’s significant about that is the description isn’t an exaggeration.
The definition of affordability, in other words, has shifted from its subprime meaning to its true meaning, which is that buyers can bear the cost of a home without serious detriment, including foreclosure due to negligent lending standards. This week’s shining example of affordability is Southern California, where the median sales price, a Los Angeles Times story points out, has sunk below $300,000.
The SoCal median, now $285,000, hasn’t been this low since 2003, which seems like decades ago. That’s a price plunge of 34.5 percent since November 2007. Prices in the region hit a high in 2007, when the median was $505,000.
But it is pointless to pine for those good old days, because, as we now know, they really weren’t so good. Prices were way over the top. Speculation ruled. The positive from the ensuing, nasty housing fallout is that, for those who manage to qualify for a mortgage in today’s stringent lending climate, current home prices in Southern California –and other hard-hit housing markets – are more in line with what they would have been had the housing bubble not ballooned.
Which is to say affordable. A National Association of Home Builders quarterly index, the Times story notes, showed that at the end of September, about one-fifth of Los Angeles area residents could afford the median-priced home. During the height of the real estate boom in 2005 and 2006, only about 2 percent of Los Angeles area residents could afford a median priced home, the index showed.
Give the housing market a year to hit bottom and begin recovery, the experts say. A recent MarketWatch story cites a Keefe, Bruyette & Woods report forecasting declines of about 5 percent on new U.S. homes and losses of between 5 percent and 10 percent on existing homes for 2009, but expects prices to bottom by spring.
“We believe that new home sales will hit a bottom in early 2009 and existing home sales have already hit bottom," KBW analysts wrote in a research note.
posted in: Blogs, business
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