Homes are cheaper, but not necessarily affordable
|April 16, 2010||Posted by Jeffery J. Smith under Progress Report, The Progress Report|
Homes are cheaper, but not necessarily affordable
Dollar parity keeps Canadian buyers in US real estate
US homes may be more affordable for some Canadians but not for some Americans. We trim, blend, and append two 2010 articles from (1) MarketWatch, Apr 6, on Canadian money by Tania L. Haas and (2) MarketWatch, Apr 12, on affordable homes by Amy Hoak.
by Tania L. Haas and by Amy Hoak
- Dollar parity keeps Canadian buyers in US real estate
As the Canadian currency reaches parity with the US dollar, more of that country’s residents are buying a second home south of their border. About 27,000 Canadians bought vacation homes in the US last year.
Most Canadian buyers, about 22,000, used cash for their US property purchase in 2009.
Experts expect the currency known as the loonie to continue to appreciate over the next several months, sending Canadian buyers on a shopping spree in Florida, California, and Arizona.
The Bank of Canada is positioned to raise interest rates before the Federal Reserve. [When a nation pays higher interest on its debt, its bonds, then its currency becomes more valuable to currency traders.]
The Canadian dollar reached its peak at $1.10 (US) in November 2007. The last time the loonie danced with parity was back on July 22, 2008, when it hit $1.0001 US.
With the appreciating dollar, more Canadian home seekers look south to get more value for their dollar. Canadian buyers led all foreign clients in 2009, approximately 154,000, beating home seekers from the UK, Mexico, and India.
Many Canadians, spooked by the volatility of the stock market, are looking to invest their money into property.
Florida’s appeal is its proximity to Eastern Canada, easy access to the ocean from anywhere in the state, low maintenance fees, and inexpensive taxes.
Also at play: the nostalgia factor. Many Canadians were there as kids, visiting Disney World with their parents, or spent the odd Christmas with their grandparents.
- Homes are cheaper, but not necessarily affordable
Despite housing prices and mortgage rates being lower, housing is still out of reach for many Americans.
For instance, transportation expenses can quickly render a low-cost housing choice unaffordable when the price of commuting and reaching other destinations such as shopping and school are included.
And while national affordability conditions may be great, local markets can vary widely, meaning many median-income service and community workers are priced out of the towns in which they are employed.
The National Association of Realtors, on the other hand, finds affordability at an all-time high. In 2009, their index was 171.6, meaning a family with the median income had 171.6% of the income necessary to qualify for a mortgage loan on a median-priced home — well more than what they actually needed. That’s up from a reading of 115.4 in 2007.
The index assumes a 20% down payment, and that the combination of monthly mortgage principal and interest doesn’t exceed 25% of median household income each month. The median household income in 2009 was an estimated $61,845 a year; the median existing-home price was $172,100.
The Center for Neighborhood Technology, an organization that researches solutions for transportation, community development, energy, natural resources, and climate change issues, has its own affordability index; it shows only 40% of communities are affordable to the typical household when transportation costs are included. That assumes 45% of a household’s income goes toward the combination of monthly housing costs, including utilities (for either a rental unit or an owner-occupied home), as well as transportation costs.
A typical household’s transportation costs can range from 12% of household income in areas with walkable streets, access to transit, and a wide variety of stores and services, to as much as 32% in areas where people need vehicles to get nearly everywhere. In some of the most far-out exurbs, transportation expenses are higher than the cost of shelter.
And if gasoline spikes again this summer, that will put even more pressure on car-dependent households.
People should estimate their transportation costs before deciding where to live, the organization said.
Another overlooked factor is the income of various professions.
The Center for Housing Policy in its recent report on 208 homeownership markets, “Paycheck to Paycheck: Wages and the Cost of Housing in America,” found police officers cannot afford to purchase the median-priced home on their salaries in 86 of the markets.
Elementary school teachers can’t afford the median-priced home in 83 communities and licensed practical nurses can’t afford one in 146 communities. The report assumes a 10% down payment, and that households don’t pay more than 28% of income on mortgage, property taxes, and insurance.
That said, the income needed to purchase a median-priced home dropped in 93% of 208 markets between 2008 and 2009, according to the report.
The study also found 24 areas where the monthly payment costs for a median-priced home were less than the fair-market rent for a two-bedroom apartment. These markets were mainly in Ohio, Florida, and a handful in other areas hard-hit by foreclosures.
While the cost of owning may be more affordable than renting in these places, employment security can be a huge factor in whether or not to buy. Families must decide whether they’re prepared to stay in the home regardless of what happens in the labor market.
JJS: Now assume geonomics, the public recovery of ground rents in lieu of taxing our efforts coupled with a dividend to residents. First, squeezing land out of mortgages reduces debt, so dollars stabilize. Second, land dues spur owners to fill in cities, making them compact, with lower transportation costs. And third, the dividend augments income so service workers can become homeowners. Problems do yield to economic justice.
Jeffery J. Smith runs the Forum on Geonomics.
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