Housing Affordability Highest in 20 Years

Behind every cloud there is a silver lining—so they say. That may not give folks a warm fuzzy who have recently lost their homes or who are still negotiating with their lenders to stay in houses that have been their homes for years. But for folks who have been hoping to buy a home and hoping to get a deal—come on down!

According to , the National Association of Home Builders which keeps track of these things on a global—or at least country-wide aspect--home affordability rose to its highest level in at least 20 years in the last quarter of 2010.

Their “Housing Opportunity Index” (HOI) found that 73.9 percent of new and existing homes sold in the fourth quarter were affordable to families earning the national median income of $64,400 -- surpassing the previous high, 72.5 percent, recorded in the first quarter of 2009.

Statistically, “affordable” means that the median cost of “housing” in a particular area is offered for about three times the annual earnings of the people who live in that area. So if the median (family) income was $70,000; an affordable house would cost $210,000. Meaning that “affordable” house would close at $210,000—so the asking price might have been $225,000 or even more.

This, of course merges both new and “used” homes into the same statistical pot. Usually we see new homes costing more dollars per square foot than used homes. But not always, and not so much today. Last Fall John Cannon Homes offered a marketing strategy—to get some sales—in which they offered some of their homes at $99 per square foot. This price which could grow higher with upgrades, includes to cost of the structure and the value of the underlying land.

Our old rule of thumb—when the market was strong—was that a structure would cost three times the cost of the lot, and so the structure was 75% of the final cost. This gave us a sense that if a lot was for sale at $50,000, we could build a house that would cost the builder $150,000 and sell the home to a consumer for $200,000. Those were the old days.

Today there are land bargains for the builders—and therefore there are bargains for the buyers when they buy a new home. Gibraltar Homes has recently been offering new homes at $98 per square foot. I recently saw that a number of lots were sold in Englewood with a final price to the builder of $14,000. Don't use my old rule of thumb today—if you did you would look for $56,000 finished homes on those lots—and that just is not going to happen.

The Gibraltar homes start at $203,300—which from the advertising I have seen means the homes are just over 2000 square feet. This is a huge value for a new home, even if there have been some corners modified. I would expect these homes to be beautiful and have a big “Gee-whiz” factor. The builder will have compromised his profit for a few immediate sales and cash-flow; and may have delivered a home with all the “goods” less some of the highest cost items. Think mid-range cabinets, maybe a mid-range HVAC, and impressive porcelain tiles not marble or granite.

And keep an eye out for the unseen costs that are attached to homes that may seem too good to be true. I refer to costs to finish the home in your own taste—curtains and other window treatments, landscaping, security, lighting insurance and taxes plus the ever popular Home Owner Association fees, which are not negotiable and which may or may not include cable, assessment for common areas and the like. In other words, $99 per square foot probably is a good deal, even a terrific deal, but may wind up costing a good deal more when you factor in the monthly coasts of living there.

Used homes, on the other hand, cost whatever you can negotiate, and the costs of maintaining the home should be pretty well known to the potential buyer—and disclosed—by the seller. There are dozens of homes in the Sarasota/Charlotte County area that are selling for far less than $98 per square foot. Some of them come with less than 10,000 square feet or land—some come with an acre or two. Larger parcels of land are not something the new home builders are “throwing in”to attract buyers. As a matter of simple economics, builders include the minimum they can which will still make an acceptable and attractive home.

Is today the best time to buy a home, new or used? My opinion: it is if you are in the market to buy one. If you need or want to buy right now, you will find a smorgasbord of affordable homes available, from $70,000 duplexes which might allow you to live in one side and rent out the other for some passive income to cover the taxes and maintenance; to million dollar beach front homes that used to be multimillion dollar beach homes.

So affordability today is its highest level since we started computing the HOI," said Bob Nielsen, NAHB's chairman, in a statement. "However, while this is good news for consumers, both home buyers and builders continue to confront extremely tight credit conditions, and this remains a significant obstacle to many potential home sales."

Dane Hahn is a real estate professional with Tarpon Coast Realty in Englewood, Sarasota and Boca Grande. He will answer your questions and you can reach him at dane.hahn@gmail.com or by phone at 941-681-0312. See his web site at http://www.danesellsflorida.com/.