Monday, February 12, 2007

Fewer Buyers Can Afford Homes

I finally finished my grad school application this weekend. I won't find out whether I've been accepted until the end of March, early April. And then I'll need to try to sell my condo. So, it goes without saying that I'm a bit worried about the current state of the housing market. According to a recent MSN article, the housing slump may not be over any time soon because houses are still priced too high for the average buyer.

"The question is when a new balance will be reached between supply and demand. The housing slowdown is unusual because it has not come amid a general economic decline. Rather, it appears that home prices simply rose to a point where fewer buyers could afford homes."

Okay, no surprise there. But check out the actual ratios of salary to home prices.

"By last year, a median-price American home cost nearly eight times average annual earnings, up from about five times earnings in 1980, according to research by New York investment firm Merrill Lynch. Now, fewer buyers can afford homes, and many speculators are trying to clear out of a cooling market."

Eight times average annual earnings? No wonder Americans have a negative savings rate!

My condo and deeded parking space cost less than 2.5 times my average annual earnings, and I put 20% down. Even then, I thought I was stretching a bit. Admittedly, my association fees for my condo and parking space are outrageously high at $500 per month. But that includes water, heat, garbage, sewer, satellite tv with premium channels and high-speed, internet access.

1 comment:

Gigi said...

You shouldn't have a problem in Chicago. I don't think the slump has hit here. Also, we never saw those run-away prices.

Also if you sell in April or May, you'll be hitting the traditional seller's market.

Good Luck.