Les, I remember home prices in my part of the Bay Area rising through 1991. They were just starting to really heat up in 1987. I was looking at the time, and once saw asking prices jump 20% in a week in 1989. Your numbers may apply to averages for California though, I don't know.
I've looked at a few of the posts over the last few days about affordability. Not really following how it's calculated, or national statistics, but in terms of affordability perception I'd say the key items in my region are -
--for those who don't have a place yet, and have no prior home equity to draw on when selling or didn't cash in stock options in the bubble, affordability is far worse than ever (but maybe not for long).
--two incomes is pretty much required, except for the very best paid workers or outlying cheapest areas
--for those moving up, the market is very intelligent --- even after you cash out on your existing home equity, the next step up to a truly nicer or bigger place will still stretch your ability to pay - unless you've owned a place long enough to hold a majority of the equity when you sell, or want to move to an area further away with much longer commutes. Taking on a 30 year mortgage for 400k on a move up home at age 45 or 50 is more onerous than the same mortgage at age 30 - when you could pay it off by age 60 (assuming your ability to pay the mortgage is equivalent).
--It seems likely that the capital gains exclusion on resale adds fuel to the fire, because many people who move up collect the $250k - $500k tax free and consequently have more to bid on their move-up home. This is another tax law that really favors existing homeowners over renters (middle class welfare), and can make homeownership even more out of reach for those who aren't in the game yet. It seems to work ok where housing costs are lower, but just adds to putting even lower-end homes out of reach for many people in areas where costs are already sky high.
--As you mentioned, the low down payment deals probably help more people to get in initially, but I bet it will boomerang back at some point in more foreclosures as job losses heat up.
Also, California's Prop. 13 may tend to artificially restrict supply of homes for sale, because your tax can only be raised I think 1% per year until you move. So, if you got in years ago, your tax rate may be only 1/10th that of your neighbor who just bought a place at the existing price. This will tend to discourage older folks on fixed incomes from moving out of larger houses on which they've kept low taxes under Prop. 13 (unless they plan to move out of the state), because even buying a smaller new place can jack up their tax rate (when you move, you are subject to the same property tax rate, but on a higher base price, so your tax goes up). I agree that a tax limit was needed, but they should have made a more moderate rate evenly applicable to everyone instead of creating this warped system.
Of course, the Bay Area isn't the best yardstick for the rest of the country. |
