Boy, am I going to wade into it this time...
I was wandering through the FOXNews Real Estate section, and came across this feature story. Reading this, one would think we were seriously in trouble. "... from San Francisco to San Diego — is predicted to decline 50% in the next five years." The story goes on to say "... that America's top 40 cities are facing a average 47.2% decline: Boston is 49.4%. Miami 44.8%. New York 44.6%. And Chicago is 27.3% overpriced."
I'm wondering about here in Atlanta. I'll be going out to get a look at the book, Sell Now! The End Of The Housing Bubble. There is a list of the top 130 metro areas, and the likely declines. But, back to Atlanta, what is it like here?
The National median home price was $217,000 in March. Here in Atlanta, specifically Gwinnett County, the average home price in June was just shy of $257,000, but I think will calm down to around $250,000 for July. According to Wikipedia, the median income was $60,357. I'm sure that has grown a bit in the last 7 years, too.
Looking at the numbers, there are a couple of things that pop out. Running a few quick calculations we see that 28% of the income is about $1400/month for PITI. If one puts down an average of 10%, we see that the $257,000 home will need about a $232,000 loan. Using 6.5% (the rate on CompareLenders.com today for a 30 year fixed), I come up with $1466.39 for P & I. That leaves us a little short, since we still need taxes and insurance. When we add in those ($500 for insurance, and $3257 for taxes) we see the PITI come up to almost $1780.
Looks like we need to see a decrease of about 22%, no? Actually, no. Here is why. {Warning, entering an opinion zone}. These are a mix of average and median figures. But, there are a lot more figures that need to go into this. I took 10% down as an average. I know that it is really MUCH higher than that. Move-up buyers moving their equity into a more expensive home, retirees and empty-nesters moving their equity down into a less expensive home, and cash buyers will all have an effect on that "down payment" number. That effect will lower the financed amount. Also, those families at the lower end of the median income scale will likely rent, increasing the median income of actual home buyers. There are also other factors that come into play. Other forms of financing may carry lower rates, as well as the future of rates.
I'll cover what I think will happen to rates in another post.
I'd love to hear what you think. Don't forget to rate the post as well. Thanks, and I look forward to your replies.
Unless otherwise noted, all content of this blog is the property of Lane Bailey, ©2012 Lane Bailey.
I'd love to hear from you...
I honestly don't think that it's going to be that bad. I'm of the opinion that here in St. Louis that we have dropped around 10% in value (which is bad enough), but housing formations are continuing to rise as well as the population as a whole is continuing to grow. People will have to live somewhere and as older housing stock leaves the market due to any number of factors, new home construction costs will provide a bottom.
This is because if it costs more to build a new home than the builders can sell it for, they will stop building! This will limit the supply of homes, which will cause prices to stabilize and more than likely go up in most areas.
Fox news? Consider the source!
Bob Mitchell
ValueList Real Estate Services, Inc.
It's fun to bash FOXNews, but you can find the same stories with any of the major news sources. And, I do think that there is a HUGE issue out west, as well as some of the other overheated markets. Using CA as an example, it isn't the home that is so valuable, it's the land the home sits on. That is where we will see adjustments. Face it, it costs about the same to put up a similar home with similar materials whether you are in CA, GA, or MO, but in CA, the price will be several times what it is in GA or MO. Now, unless the contractors are making a killing, the difference has to be in land prices. There just isn't as far to fall when you are putting $150k structure on $30k worth of property as there is when you put $150k structure on $600k worth of land (same size lot).
I sure hope, and believe, that most of the Doom and Gloom crowd are quite wrong.
After hearing Leslie Appleton Young from the California Assn. of Realtors speak on this subject, I am less likely to subscribe to the predicitons of Fox News - or any other news network for that matter. In California - we are anticipating growth over the next ten years with population increasing by as much a 29million. The coastal areas remain the target of most newcomers, while the sellers in those areas are headed east into the valleys and even out of state where their dollar buys back some of their original dreams.
I have been watching and listening as these media sooth-sayers have put the fear of failure into the minds of many a consumer over the past two years. To what end? Taxation has remained constant, while rental rates have risen. The best protection offered is still to write off the interest paid on a mortgage.
We have educated our children in colleges and turned them out into a world of dual careers - and many professionals at that. Interest rates remain low while housing prices have softened somewhat. IT IS STILL A GOOD MARKET! I would caution buyers with regard to their loan product. That is common sense though...don't you think? If it sounds too good to be true - you know that it probably is. Use your intellect!
Best Wishes!
Natalia Budilo, GRI
Two things...
First, for those that think the story MUST be defective because it came from FOXNews, the story was a wire story from Dow Jones Market Watch... just picked up by Fox.
Second... and this is the funny one. It is from March of 2006. I didn't notice that, and it is a feature on the FOXNews site today... they should get a nice slap for that.