Housing markets pricing out middle class

[UpInArms]

http://www.businessweek.com/ap/financialnews/D8B8M3KO0.htm?campaign_id=apn_home_down

JUL. 10 1:58 P.M. ET The red-hot housing market in booming cities across the country has made the dream of owning a home out of reach, not only for low-income families but also for white-collar professionals.

<snip>

Kim had just received a doctorate and a job offer from a university that would double her salary to more than $47,000. But the prices of even small bungalows climbed far beyond what the young couple could afford even when they stretched their target price to an uncomfortable $300,000. So after several disappointing drives around the area and countless Internet searches, they ended up back where they started -- in an apartment.

"Many of the overheated real estate markets throughout the country have become unaffordable for the majority of the population," said Jack McCabe, a housing industry analyst in Deerfield Beach. "Many people are paying well over 50 percent of their income for shelter. It leaves no money for savings or sometimes even for recreation."

Real estate experts warn that housing prices in many markets are too quickly outpacing the incomes of most workers. The widening gap affects families across the country, from Washington D.C. and Rhode Island to Florida in the South and Nevada and California in the west.

...more...

[iconoclastic cat]

1. Hey, great economy, freeps and fundies!

:woohoo:

[FlemingsGhost]

2. Wait for it .... Oh, it's coming ... **BOOM!**

That enormous popping sound, isn't a terror attack, it's the real estate market imploding.

[NMDemDist2]

3. my house has doubled in "value" in 6 years as have most homes

in AZ.

With the 50% cut in income since Bushco took office, I couldn't afford to buy where I'm living now. I'm grateful for the small monthly payments I'm making (which wouldn't even pay for a decent apt around here)

[MountainLaurel]

7. I hear you

My one-bedroom condo in VA, near DC, did the same between 2002-2004. On a librarian's salary, there's no way I could purchase it.

The inaffordability (excuse me if that's not actually a word) is one reason why my fiancee and I are hoping to hightail it out of this area in about a year or so. Even with two people working, and the sales of two residences whose values have skyrocketed, we still can't afford a SFH with a yard in most neighborhoods on nonprofit and educators' salaries.

[phylny]

42. My house in No. Virginia sold for almost $300K more in four years

than we bought for it.

We moved last year. Neighbors said since we sold, it's risen in value an extra $150K.

It's obscene. $450K in five years? Ridiculous.

[stray cat]

4. Bush's ownership society is only helping owners

[Deja Q]

39. That's the intent.

[Julius Civitatus]

49. He meant that MBNA will own us all by the time he's done

with America. Seriously, between the new credit bill (totally abusive and in favor of the credit card industry) and the out-of-control real estate market, we will soon be OWNED by MBNA and Bank of America.
That's what he mean by "ownership society," really.

After all, slavery was also an "ownership society," wasn't it?

[silverweb]

5. Since when is this news?

It's been true for some time now. The only "news" is that it continues to get worse as the economy continues to tank for the former "middle class."

:shrug:

[Coventina]

6. It is beyond insane here in AZ

I know someone who bought a house 6 months ago for $135,000. Now, the house next door, pretty much the same house, just sold for $240,000.

And these are not "nice" houses. We're talking your basic 1950s Ranch style things.

The investor that bought the house for $240,000 thinks he can update the house and flip it for $360,000.

Completely, totally certifiable.

[1932]

8. Since anyone can get a mortgage, it's not so much M.C. are priced out

The problem is that the M.C. are forced to take on outrageous risks to be home owners and I'm not sure many people are aware of the risks they're taking on.

The worst part of this isn't that some M.C. people feel the risks are too great and aren't becoming homeowners. They might be the lucky ones right now.

The risks are that the people who are homeowners, who've been financing consumption through home equity loans, and people who've purchased houses in the last 4 or 5 years, might get totally screwed by a crash in the home market.

[union_maid]

9. Total lunacy on Long Island

We'd be sitting on a lot of money if we could move out of the area - and if we could move to an area without a bubble. I'm sure anyone who can is taking the money and running. Meanwhile, they're building McMansions on pieces of land that no one would have wanted at all a few years ago.

We've got a mother/daughter house. Good thing, too. There's my mother, her daughters, my daughter and her daughter all living in it, along with some sons and husbands - with one more son or daughter on the way. My married daughter and her husband cleared about $100,000 last year and can't afford to buy a house. We're lucky that we can squeeze everyone in. Not everyone can. And with everyone paying, the way the taxes are going up, it's still not a walk in the park.

[HockeyMom]

14. I'm renting a Mother/Daughter house

in Selden for $2,000 a month plus utilities, private owner. We sold our 3 bedroom in Smithtown, when my husband got a job in Florida, for $475,000. My husband was out of work for over a year. After the credit cards were paid off, mortgage paid off, the real estate agent/lawyers fees, etc, we netted $280,000 on $475,000 house.

I looked at buying a 2 bedroom condo for myself and my daughter for under $200,000. Can you say GHETTO? LITERALLY! From what I understand, people just bought these condos and RENTED them out; broken/boarded up windows, dogs roaming the complex, etc. FORGET IT.

I looked at the few apartment complexes there are around and I was shocked at not only the prices, but the rules/regulations, and FEES.

They wanted to see W2 forms. In order for your to qualify, your yearly salary had to be 3 times the rent. For a 2 bedroom the rents were $1,700 to $2,000 a month. THINK about the salary for that. Even putting aside the two months security fees, they charged YOU $100 PER PERSON, over the age of 18, fee to do a criminal/credit check. I have two cats. They wanted to charge $500 PER PET NON REFUNDABLE fee, plus $30 per pet every month. INSANE - absolutely insane.

[Garfield Goose]

10. If the housing market is red hot

and no one can afford to buy a house, then who the hell is buying all the houses to make this a "red hot market?" The rich are a small segment of the population. WTF?

[barb162]

12. People are buying like crazy in nonheat markets and in the heated

markets, only the ones who already had equity in previous houses are buying. That's still a lot of people. I think most markets are nonheated and the media always concentrates on CA, NY and other heated areas.

[Iowa]

20. Yep...

I live in a small town in Iowa (around 7000 population). We bought our house for $40,000 23 years ago. It would probably bring roughly $80-$85K today. Property taxes on this house are $1044 per year. Three BR, 1.5 story, detached garage, central air, big yard, permanent siding, screened porch, 1 bathroom. There are some nice upscale homes on the block, and my neighborhood is great. The mayor lives next door, some nice retired couples, a few public school teachers, a couple of blue collar workers, two wealthy factory owners, a nurse, one rental home, a social worker - all these on my block. Crime is no issue. Schools are good. If you need to be at work by 7:30 AM, you leave home at 7:20 and there's time to spare. There's a big full-square-block park on the next block. A typical family income here would be roughly $60K-$70K with one working FT and the other part time. I don't know how some of you manage with house prices at those levels. Although it's pretty slow paced and some would find it boring here, we would love to have some of you great progressive thinkers move to Iowa!

[borlis]

24. Are there any jobs there? n/t

[Iowa]

33. Yes, but...

it may take awhile. One option: get a government job in the city (like Des Moines) that has offices all over the state. Then wait for an opening in a small town and request a transfer. The pay is the same as in the city, but the expenses are way less. It might take a couple of years, but maybe less. As the boomers start retiring I think more of those jobs will be opening up. Of course nurses, physicians, some of the med techs, and physical therapists can go pretty much anywhere and be welcomed with open arms (in my area anyway). Quite a few teachers are retiring, or will be soon. People who are good at plumbing, home repair, etc. have more work than they can handle. It's tough to get someone to come. I have about $15K worth of improvements and I've been waiting more than 6 months. I have a couple of friends who are psychologists in my small town (private practice), and their schedules are packed. There is a small web design company here and they're doing great and hiring people. So it depends on the skill, but yes, there are jobs. It would depend on the skill.

[barb162]

28. Wow, sounds wonderful, ideal....

Our property taxes are almost 10,000 bucks and we are sick of it already. We are thinking of moving and getting a way smaller place. I think we bought this place about 12 years ago and the taxes were about 3000 or so (off the top of my head). I am in a suburb of Chicago. I suspect from what other houses are selling for around here, the prices have almost doubled in about 12 years.

Chicago has extremely low property taxes but the house prices will be high. I know a guy in Chicago who bought a 2 flat for 30,000 about 30 years ago and he could get around 800,000 for it now. He only pays about 3000 in taxes on it and complains to high heaven. The rich gut the 2 flats and make them into single family houses and that's how they get the space they want in the city.

[Darwins Finch]

47. Sounds nice!

I'm looking for that kind of change (DC townhouse owner whose property "value" has doubled). I'll add Iowa to my Monster job searchs and hopefully the need for a biologist/IT type will crop up.

Thanks, you do a good job selling your state! :)

[snooper2]

38. I just bought a house, but a fixer-upper...

It's very livable but by putting $6K in to it I should be able to raise the value $20K. Bought from a co-worker and we saved 6% by not using realtors on either side. ($113,000 in Plano, TX)

It's the McMansions that people are building/buying, and they are built like shit and look like shit to me. I have over a 1/4 acre on a corner lot with a 30year old home, and two blocks down the street are new 2 story McMansions on zero-lot-lines with no front or back yard to speak of for $220,000 +.

I guess it's all in what you want...

[mccoyn]

41. I'm buying, heres why.

The economy is coming back. The housing market has been slow for many years because the economy was slow. Now those people have been in jobs and its time to look for a home. Add to that interest rates that are low and everyone knows they are going to go up. Buy now and risk the pop. Buy later and risk high interest rates.

Even if it pops and my new house goes back to its price 10 years ago I'll still be in a better position in 5 years than if I paid my current rent for 5 years.

[redacted]

11. Median home from 300K to 600K in 5 years here.

5 years ago we were starting a business and couldn't get a mortgage, now we have a successful business and can't afford a home.

It's really disheartening.

I suppose at this point we could get a mortgage, but I am so afraid we would lose our down payment if the market turns, that we feel paralyzed about it.

We kept reading about how the market will change to favor us -- but it just keeps going up and up . . .

Please someone say something positive.

[Garfield Goose]

13. I don't know if this is positive..

but perhaps the whole idea of home ownership is an American-inspired "keep up with the Jones" mentality propagated by corporate advertisers. My guess is that most European and Asian countries don't have home ownership and private property ownership as a life goal. I might be wrong, but don't most middle-class people in Europe and Japan rent, own condos, or non-McMansions?

[lakemonster11]

15. The good thing about home ownership

is that, after you make your years of payments, you have equity. Apartment-dwellers don't have anything to show for their years of rent.

[mikita]

16. you don't ALWAYS have equity....

it depends on where you live and whether sales are flat, booming, or crashing when you want out...

another American myth...

[barb162]

29. most of the time homeowners have the equity

[Xipe Totec]

18. People have been dipping into that equity to survive

Converting credit card debt into home equity loans through "debt consolidation" scams. Now their homes are at risk.

[barb162]

30. People have been dipping into the equity the last several years

for every damn reason. New cars, furniture, the stock market, buying more property, etc. It's a very interesting trend. First time I ever heard of it was in the 80s and a friend of mine pulled equity out of her house , put a bunch of money in the stock market and rode that incredible wave in the 90s and pulled out right before the tech crash. She always had a great feel for money, it was amazing. She made millions doing what she did.

[Xipe Totec]

34. All true, but now the Joe Six-pack is doing it for groceries.

That's the scary part.

One thing to consider is that every transaction has two parties. For every person that made a killing in the stock market, another person got 'killed'. And it's usually not the smart ones that end up getting killed.

Joe Six-pack hasn't got a prayer.

[barb162]

43. self delete

[barb162]

44. how true

[social justis]

21. i'd be glad to rent you a house

be glad the market is doing well. if you think it is too hot, don't buy. if you think you need a house of your own, buy. if you think your area is over priced, move.

some people just like to complain.

[Bridget Burke]

37. Some people can't just "move"

They have jobs--they aren't landlords.

[WhiteTara]

25. Hey Garfield Goose

I don't know the answer to your question, but welcome to DU
:hi:

[ckramer]

27. "Please someone say something positive."

Read this:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x1917523

[Vitruvius]

17. This is just the first wave of the great Bu$h INFLATION

caused by the horrible Bu$h budget deficits and trade deficits.

[InkAddict]

19. What to do? What to do?

It seems the only non-heated areas also have higher unemployment and/or unstable/available employment at best.

We've nearly lost our home three times, and when a 4-bdrm, 1-1/2 bath home gets shown only 7 times in six months, sure makes one wonder who is doing all this buying? The RE people only wanted to know if we were going to paint all the walls white -- no silly, the new owners sure can if they want to though. Of course, it's appreciated--but hardly enough to break even considering the continuous scrabbling to keep it since the Ray-gun days. At least it was easier to find Ohio IT gigs during the Clinton years!

Meanwhile, we've downsized (probably forever) into a 2-bdrm apartment. We've found someone who wants to rent the home and assume maintenance on it until he can buy it, perhaps within the year. I guess we'll still have the tax deduction at least for another year, but after that, who knows. Either the person will buy it or will find a better deal and we'll try for a sale then???? Anyway you look at it, the investment/ownership for this 50-something couple seem to have just about vanished. So much for the American Dream!

[lovuian]

22. Our Housing Market hadn't gone nuts but is starting too

Just noticed it this weekend... very few for sale signs and prices jumped up...

we are in Southern Texas which escaped the craziness but I think its here!!!

[borlis]

23. My best friend moved to Florida 2 years ago.

They bought a beautiful brand new house about 3300 sq. feet in a golf course community. They paid $299,000.00 Now just 2 short years later the houses on her street are going for over $500,000.00. She doesn't even have a pool yet. She says that after their pool is finished they will probably be able to get $550,000. if they were going to sell.

[barb162]

31. Braedenton prices went up 40+ % in one year.

[LefflerP]

26. I should be so lucky.

...housing prices in many markets are too quickly outpacing the incomes of most workers.

I've been trying to sell a 12 year old home for over three years, now.

I can't even get the appraised value on it, much less the asking price, which would allow me to get away from it without taking a beating.

[shrike]

46. Welcome to DU

And my condolences. The house next door to us has been on the market for a year. No bites. Meanwhile, they're cramming a bunch of cheap condos on a lot down the street.

[gadfly156]

48. Shoddy '70s

We're in a shoddy 1974 townhouse purchased in '00 for $129k. It's not a bad area for a TH development -- bigger yards, well set near a creek and a line of trees, etc. -- but living here is almost as bad as living in apartments what with all the noise, huge cadres of kids 9-14 running amok, etc. Nevertheless, prices have skyrocketed like crazy.

I thought it was ridiculous when these things started going for $269k about 6 months ago? Forget about it. They are now going for $305-315k. And the average time on the market? 7-11 days. Yup. Who the frack wants these places so bad to pay so much for them? Answer: everyone who can't afford the new townhouses going for $500k & up, or can't afford even the cute little '40s brick bungalows going for about the same.

I remember driving in certain parts of the area when I was growing up and seeing what I considered to be the "poor people's homes" cuz they were so small, semi-shabby, and covered in siding. Today I couldn't touch one of those homes price-wise.

I'm in Maryland, close to DC. Don't move here. Don't move to northern Virginia which is even worse. YOU CAN'T AFFORD IT.

I can't wait to get the hell out of this area and go someplace I can own a REAL home. And no, it's not an "American dream/keep up with the Joneses" thing. I'm tired of having everyone else's freaking noise in my living room, is all.

[shrike]

54. Welcome to DU to you, too

I'm usually not the welcoming committee around here, but what the hell.

[AgadorSparticus]

32. Housing Markets Pricing Out Middle Class

WEST PALM BEACH, Fla. - The red-hot housing market in booming cities across the country has made the dream of owning a home out of reach, not only for low-income families but also for white-collar professionals.

"Many of the overheated real estate markets throughout the country have become unaffordable for the majority of the population," said Jack McCabe, a housing industry analyst in Deerfield Beach. "Many people are paying well over 50 percent of their income for shelter. It leaves no money for savings or sometimes even for recreation."

After So Young Kim took a teaching job in Florida, her friends in Chicago gushed that she and her husband would be able to afford twice the house when they moved.

Kim had just received a doctorate and a job offer from a university that would double her salary to more than $47,000. But the prices of even small bungalows climbed far beyond what the young couple could afford even when they stretched their target price to an uncomfortable $300,000. So after several disappointing drives around the area and countless Internet searches, they ended up back where they started — in an apartment.

http://news.yahoo.com/s/ap/20050710/ap_on_bi_ge/unaffordable_american_dream

[meow2u3]

45. Housing today is priced more than it's worth

The real estate industry is in collusion with some state and local governments, so they jack up the value of houses partly to see to it that only the rich can afford to own a home, and partly as an excuse to make a killing from deflated interest rates. Real estate companies have to get their obscene profits somewhere, so appraisers deliberately overestimate the values of people's homes, and property taxes skyrocket with them.

[ckramer]

35. Beware of Property Bubbles

During its bubble years in the late 1980s, Japan had rampant bubbles both in stocks and property. While the focus is always on the more spectacular equity bubble, hindsight leaves no doubt that the following economic disaster was mainly rooted in the property bubble. Both bubbles burst in the end, but the property deflation has continued for 13 years now, with calamitous effects on the banking system through a horrendous legacy of bad loans.

As a result, Japan has been struggling for years with two kinds of endless price deflation: gradually in the prices of goods and services and savagely in asset prices. The main culprit in keeping the economy locked in chronic stagnation is the evil concurrence of protracted property and debt deflation plainly strangling the banking system.

The third victim of a bursting property bubble is the building sector. Japan's has never recovered from the depression following its excesses in the late 1980s. After all, the property bubble of the late 1980s turned out to be the prescription for a 1930s-style debt deflation. In 2004, residential building contributed 0.51 percentage points to the reported U.S. real GDP growth, compared with 0.03 percentage points in 2000.

We have gone into these details about the dangerous nature of housing bubbles, and property bubbles in general, with one question uppermost in our mind: Is the U.S. economy in better or worse shape today than it was in 2000? Put differently: Is it in a self-sustaining recovery?

read more

[LibDemAlways]

36. In my corner of Southern CA suburbia

prices have maxed out and there's a glut of unsold inventory - homes put on the market at vastly inflated prices by people who were looking to ride the gravy train. Looks like it left without them.

Example. A contractor bought a three bedroom fixer less than a year ago as an investment for $600K - which was too much to begin with. He made lots of cosmetic changes and a couple of months later put the place back on the market for $799K, where it sat without any lookers much less takers. The price then came down to $759K, and now $729K. The place is still unsold, and I heard that the contractor may try to rent it out at an enormous monthly fee or downsize and move in himself.

The real estate market has always depended on first time buyers looking to get a foot in the door of homes people are selling looking to "move up." Around here there are no affordable homes for first time buyers and no one who can afford the costs associated with moving up, particularly the vastly higher property taxes.

It's a no win situation for everybody and overdue for a reality check.

[dasmarian]

40. This talk of a bubble is ludicrous!!

Market forces will determine the housing prices. Talk of a bubble is unrealistic. The only way for a dramatic decrease in house cost is for people to be willing to sell real estate at a vastly decreased price. Probably won't ever happen (I would stay in my house rather than sell for a loss, wouldn't you?). This talk of a bubble assumes there will be a mad rush to sell homes at a loss, which is how in general stocks decrease in value rapidly. People are not so compulsive with real estate.

The other thing about real estate: God isn't making any more of it. It is a scarce commodity. Population continues to increase (look at population models for the next 20 years), and the population will continue to demand more space. Prices will continue to increase.

So:
Increased population (demand) + Fixed quantity of resource
= Price increases.

That is some real simple econ.

R/E will not all the sudden drop because there is no market force to make it drop. What you might see is a reaching of a equilibrium point, but never a 50% drop in house cost.

If there is ever to be a decrease in R/E price, it will come only when demand drops dramatically. If all the baby boomers move to condos and sell their homes in a short period, it might spur a modest decrease in cost (for homes, while condo prices will skyrocket).

Advice:

If you don't like your housing situation, move. Complaining isn't going to make R/E cheaper. And prices are not the same everywhere. I look at prices on the coasts, and could never move to one because I couldn't afford anything like my current standard of living, which is excellent. If you say "I can't move because I love it here, my family is here, etc.", well, then you are supporting the cost of the housing you are complaining about, so suck it up. I live in the midwest, where you can buy a *very* nice home for well under $300k -- a nice family home, not a fixer upper 20 miles from town. I definitely feel sorry for you coastal folks but you can change your situation if you don't like it simply by moving.

[spinbaby]

50. Japan

That was the logic behind the Japanese housing bubble--real estate would never decrease because they weren't making any more of it. The market collapsed anyway.

[wallwriter]

51. Move to Pittsburgh. (Seriously. It's great here).

and houses are still affordable.

[redacted]

52. For all you freepers who said I should stop complaining. Read this . . .

. . . if you can.

It's from 2003. Things have gotten worse since then.

http://www.brookings.edu/dybdocroot/es/commentary/journals/bpea_macro/papers/20030904_case.pdf

"Nonetheless, our analysis indicates that there are elements of a speculative bubble
in single family home prices in some cities: the strong investment motive, the high
expectations for future price increases and the strong word of mouth"

As per this paper, the good news is two fold: first in many areas the increase in prices between 1995 and 2002 can be attributed to fundamentals and second that a decline in prices are not likely to happen nationwide and not likely to happen all at once (i.e. with any luck and good management from the feds we can avoid a Japan-like scenario), but at least in my area things have gotten WAY out of control since this paper was written, many of the buyers are speculative investment buyers -- and I expect the market to downturn.

BTW, no, I can't just MOVE I have a business that is rooted in the local economy. But I'm glad that you folks are heavily invested in your city that you would pack up if things got tough.

[CAcyclist]

53. And The Answer Is: Rent Control

I am very happy renting the apartment I am in; the only thing that makes me nervous is if/when prices rise. Right now, rental prices are still dropping in places. If we had rent control, I'd never have to worry about leaving.