Housing Affordability Lower

Housing Affordability Hits 14-Year Low(December 22, 2005) --

At 68.7 percent in the third quarter, the U.S. homeownership rate has not strayed far from the peak of 69.4 percent recorded in the 2004 second quarter; however, Americans' ability to afford a home purchase in October sank to the lowest level in 14 years.

While innovative financing products, such as interest-only mortgages and piggyback loans have helped many borrowers bridge the affordability gap, increasing short-term interest rates have made many of these loans more costly; and the rollout of creative financing products has slowed considerably.

As a result, housing affordability retreated 9 percent in the third quarter, with California markets such as Salinas, Santa Cruz, San Francisco, and Los Angeles weighing in as the nation's most expensive destinations.

While affordability remains good in other locales, including Pittsburgh and Winston-Salem, N.C., other markets—including Phoenix; Spokane, Wash.; Cape Coral, Fla.; Orlando, Fla.; and Saginaw, Mich.—saw affordability plummet substantially, by triple digits in some cases.

Source: The Wall Street Journal (12/22/05); Simon, Ruth

Ed.'s Note: I've never really understood the rationale of housing costs rising to a level that makes them "unaffordable" to own a home. The beauty of the housing market is that the market works. It decides what is affordable & what isn't. While housing asking prices may appear unaffordable in some markets, those asking prices are merely a starting point. The sale price is what most closely resembles value, not the asking price. Which brings me to the conclusion that if a house sells for what seemingly is an "unaffordable" price, then why did it sell? Unbelievably to some, there are those who can somehow afford the unaffordable.