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| New home sales soar, but median price drops ?
August 19, 2005
Stretched to the max in California
How is it that the number of homes sold in California keeps going up even as housing prices rise? The Public Policy Institute of California asked that question and got this answer: People are spending an ever larger portion of their income on mortgage payments. The U.S. Dept. of Housing and Urban Development recommends that homeowners pay no more than 30% of their income on housing costs. But according to the Insitute's latest survey more than half of all new home buyers in California are paying more than 30%. One in five are paying more than half of their income to finance their home. That's even more astonishing because many of these same buyers are using interest only, adjustable rate loans to lower their payments. As rates rise and the interest only periods end, those buyers could end paying an even larger chunk of their income. The Golden State may be creating a new class of citizens who are land rich, but cash poor.
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land rich but cash poor is certainly nothing new
Posted by: Joyce Holloman at August 19, 2005 11:45 PM
The rule of 2.5 times income for home price died a long time ago. HUD's 30% rule for housing belongs to a different era or at least location. People complain about affordable housing. We have it. It is called renting. Considering how many pay over 50% for rent, paying 50% to buy must seem like a bargain.
Posted by: Lord at August 20, 2005 01:17 PM
Here's an equation that I think a lot of Californians will be using soon:
Overpriced Home + Intrest only ARM + Cooling Market + Increasing Intrest Rates = FORECLOSURE
Posted by: Matt Garber at August 23, 2005 12:17 PM
Finally, a major publication wrote about Harvard's housing study which puts all this bubble talk in it's proper perspective. In a Wall Street Journal article entitled, " What's Eating Home-Builder Stocks" by Scott Patterson he states:
In its recent report, "The State of the Nation's Housing: 2005," researchers at Harvard University's Joint Center for Housing Studies said new-home construction shows no sign of declining in the near future. Harvard's economists found that the inventory of new homes for sale today, measured against the pace of home sales, is near its lowest level ever.
"Given this small backlog, new-home sales would have to retreat by more than a third -- and stay there for a year or more -- to create anywhere near a buyer's market," the study said."
If you want to read the entire Harvard study or the Executive Summary, click:
Posted by: Frank Pecarich at August 31, 2005 06:29 PM