Thursday, December 29, 2005

Home affordability and its benefit to Houston

The New York Times has an in-depth piece today on national home affordability:
Despite a widespread sense that real estate has never been more expensive, families in the vast majority of the country can still buy a house for a smaller share of their income than they could have a generation ago.

A sharp fall in mortgage rates since the early 1980's, a decline in mortgage fees and a rise in incomes have more than made up for rising house prices in almost every place outside of New York, Washington, Miami and along the coast in California. These often-overlooked changes are a major reason that most economists do not expect a broad drop in prices in 2006, even though many once-booming markets on the coasts have started weakening.

The long-term decline in housing costs also helps explain why the homeownership rate remains near a record of almost 69 percent, up from 65 percent a decade ago.

Nationwide, a family earning the median income - the exact middle of all incomes - would have to spend 22 percent of its pretax pay this year on mortgage payments to buy the median-priced house, according to an analysis by Moody's, a research company.

The share has increased since 1998, when it hit a low of 17 percent before house prices began rising sharply in many places. Although the overall level has reached its highest point since 1989, it remains well below the levels of the early 1980's, when it topped 30 percent.


In high-profile places like New York and Los Angeles, home to many of the people who study and write about real estate, families buying their first home often must spend more than half of their income on mortgage payments (ouch!), far more than they once did. But the places that have become less affordable over the last generation account for only a quarter of the country's population.

Elsewhere, families tend to spend far less on housing. In Dallas, the share of income needed to buy a typical house has fallen to 13 percent this year, from 14 percent in 1995 and 31 percent in 1980.
They have a table where you can look up specific cities, and Houston is similar to Dallas, although Dallas peaked a little higher in the early 80's. We peaked at 29.9% of income in 1983, before the oil crash and drop in interest rates, and have been relatively flat/stable since 1987. We're now at 14.1% of income, 8% below the national average and one of the most affordable cities in the nation, especially among the largest metros. As I've noted before (and here and here), this gives us a tremendous amount of discretionary income to spend on things like restaurants, retail, entertainment, arts, culture, museums, travel, charity, higher education, and small business entrepreneurship - which helps give our city its great energy and vitality.

It's worth keeping in mind this stat has two parts: housing costs and median incomes. Houston is lucky to have both affordable houses and higher-than-average incomes with well-paying industries like energy, health care, aerospace, and the port. You might think, for instance, that San Antonio is much cheaper than Austin - and it is on an absolute cost basis ($123K vs. $151K) - but San Antonio's relatively lower-income tourism and military industries and Austin's relatively higher-income tech industry end up putting both of them in about the same place at 15% of income. I have to say, it must really suck to live in a popular tourist-driven area with low incomes - like Florida or Vegas - yet have wealthier outsiders driving up house prices. As an example, Miami doesn't have a lot of high paying jobs, but Northerners (is "Yankees" PC? ;-) buying second or retirement homes have driven up prices to a painful 41% of the median income, 17% less affordable than 1985.

The article includes a fascinating map. Unfortunately, this is the largest Blogger will let me insert, but you can go here for the full size map.


At 11:00 PM, December 29, 2005, Anonymous Anonymous said...

They can afford the house, too bad they can't afford the property taxes and insurance costs that come with it.

At 10:07 PM, December 30, 2005, Anonymous Anonymous said...

True, it is not the housing that has put so many Americans in a bind, it is the JUNK that we must fill our homes with. In 1978, when I graduated high school, there were no cell phones, computers or xboxes. Cable was virtually all basic, if you had it at all, phones had no options, cars cost about $6,000, though I don't know what that would be in inflation adjusted terms.

Now, many people have $100 or more cable bills, and $200 home/cell phone bills. Other electronics add more to the monthly bill.

It can be debated whether these things have made life easier (I cannot escape that damn cell phone), but they certainly made life more expensive.

Oh, and Mr. Tyler, sorry about your taxes and insurance. My taxes went DOWN this year, and I just received a rebate check from my insurance company.

Happy New Year!

At 10:56 PM, December 30, 2005, Anonymous Anonymous said...

What an awesome resource... leave it to the New York Times to put together something like this. Thanks for brining it to my attention, Tory. My copy of today's Times is still in its blue plastic baggy, so I might have otherwise missed this.

Wow, so you think SF is expensive now (53% of income), well it was 61.1% of income in 1981! Just 5 years later it was down in the 33% range. What a drop!

Interesting to note, the much-discussed Portland, Oregon is presently at 23% of income (not bad at all), with a high in 1981 of 30% (same as Houston's high) and a low of 14.1% in 1987 (just 2% above Houston's low).

At 9:04 AM, December 31, 2005, Blogger Tory Gattis said...

You're welcome. The massive drops in the early 80s are from Reagan's new central banker (Volcker, I think), who got inflation under control and substantially dropped interest rates out of the double digits, including mortgages.


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