The comments from my August Case Shiller post is the root of today’s post about Portland housing affordability. The basic question: is Portland (and has it been) affordable? According to the Case Shiller report, Portland housing prices have dropped to July 2005 prices. Meanwhile, the Affordability Index has hit about the same level as September 2004 (note that Case Shiller and RMLS have different definitions of “Portland Metro.” July’s issue of RMLS Market Action was the last month to include the affordability graph.
The National Association of Realtors (NAR) reports their Housing Affordability Index monthly. September’s report show the West’s Index is 148.2 which is about the same as Portland (Midwest is 221.5). The report is newer than the graph below but provides some measure of comparison.
I don’t think the graphs can answer the question though- they serve as a yardstick. It’s no different than the “Buy Now” concept. For some, it is a great time to buy. Affordability is equally subjective and individualized. Most lenders will impose a debt to income ratio of 45% (some may not). If you’ve got other debt such as car, credit card, student loan payments those all count against what you can actually afford in housing. We’re also seeing more and more people choosing to take on less than what they can afford. Less debt = less risk (and hopefully more savings).
One thing I didn’t mention above is jobs. Unemployment is what will really drive the economic recovery which should lead to higher incomes and more people being able to consider home ownership (which isn’t for everyone and may no longer be the American Dream).
Charles Turner writes, “Less debt = less risk (and hopefully more savings).”
Are you suggesting that my property value would have gone up if I had paid cash?
No. Suggesting that if you have no debt, you are not servicing it which means that you are more likely to be saving money than spending it. Not to mention a bank can’t foreclose on what they don’t have a piece of. A buyer that paid cash has less risk of losing their house than a buyer with a mortgage if something goes wrong. Short sales and foreclosures don’t often happen to cash buyers.
Also a borrower with no other debt is less risk to a bank than one with other debt.
I have the cash to pay it off, but the interest rate is so low (plus there’s a tax benefit). Really I don’t see how I’d be better off paying it off. The lender cannot foreclose on my loan–I make the payments every month.
That pretty much makes you the model of low risk. I wouldn’t pay it off in your situation either. Some would argue otherwise but to each their own.
You might call it “model of low risk,” but when I see my neighbor’s homes on the market not selling for much less than I paid, seems risky to me. I guess that’s why I’m not a real estate professional. My estimate is that values are going down by $2,000-$3,000 per month. My guess is that I owe more than the place is worth.
It’s good to see that affordability is increasing in your neck of the words (at least for buyers 😉 ). Do you think the trend will continue, or stagnate as the market recovery picks up a bit of steam?
As I said before: the real estate market is tied to the jobs and consumer confidence. Low interest rates and lower prices will also help in the short term.