Saturday, January 21, 2012

It's the jobs, Stupid!

Houses on the Southwest Coast of Florida are getting more affordable.  I think that it’s worth looking at "what's affordable" in light of the current conditions.  The National Association of Realtors keep a ton of data on sales and determine what regions of the country have homes which are the most affordable.

They determine “affordability” by using a bunch of formulas and a little black magic, but essentially they try to determine what the average pay is in a given area—let’s say in a county like Sarasota or Charlotte.  And from that average, they would determine if the average wage earner could afford the average home.  So if the average home was offered for sale at no more than three times the annual income, that county would be deemed affordable.  That’s a function of minimum lending guidelines, which seem to draw a line at lending more than 3x a borrower’s annual income.

This takes into consideration the types of income on a county-by-county basis, vs. the types of homes and their prices.  It may also take into consideration the “bubbles” that occur in areas where jobs pay particularly well—like Hollywood and Washington, DC. and where homes are particularly expensive. (But may still be considered—by the NAR—affordable.)

Ours is a region of two economies—our local economy and our tourism economy.  Unlike so many regions, our tourists are not just buying bathing suits and sun tan oil; they are also buying homes, even if their jobs are in London or Berlin or Rome.  This tends to skew the numbers a bit, driving some prices up and causing some very expensive homes to sell right away while other more moderately priced homes sit on the shelf, just waiting patiently for a buyer to come along.

Although we are seeing a “blip” in the sales of homes for maybe last month, there is no telling just where we are going at this moment. 

Many economists see the single biggest problem in the stalling economy as the continuing depression in the housing market, I would suggest that getting America working again will solve the housing issue.  How many people want to move, either up or down—but can’t sell the house they are in.  Most don’t have the luxury to buy their next house without selling the one they are in.  So I say jobs and the ability to borrow money is the cork in the housing bottle.

With about one-fourth of all houses in the United States in foreclosure or still underwater -- with mortgages exceeding their market price -- millions of Americans face such severe financial problems that they cannot begin to resume their normal roles as consumers, move to new jobs or finance their small businesses.  No matter how hard they wish—even pray, the market is pretty well stalled.

Many have little prospect of regaining their lost financial security. The housing bust wiped out more than half the $13.5 trillion that homeowners had in equity in early 2006, according to Federal Reserve data.
In addition, the near-halt to construction of new housing has left several million once-well-paid workers -- many of them with advanced skills and years of experience -- either unemployed or just getting by with lower-wage part-time work.

Like the troubled homeowners, most of these workers face long odds against recovering their old middle-class lives unless the industry revives.

As for financial institutions, billions of dollars in bad mortgages have become an albatross that undermines lenders' basic soundness and discourages new lending for almost any purpose. Weighed down by steep losses in its home-lending unit, Bank of America is preparing to cut 40,000 or more jobs nationwide.

The direct and indirect ties between housing and businesses of almost all kinds are a big reason for the overall lack of economic growth and high unemployment. For makers of building materials, producers of furniture and kitchen appliances and even for grass seed suppliers, the ongoing devastation of the housing market means they also have little reason to invest in expanding operations or hiring new workers.

The health of the housing market is a key element in determining the confidence and spending of consumers, more so than stock prices, because homes are more broadly held by the public.  So it came as a bit of a surprise to many that President Obama, in unveiling his jobs-creation package, said little more on the housing issue than that he would help "responsible homeowners" refinance their mortgages.

Seen any of that yet?  Me either. So far, Washington's record of dealing with troubled mortgages is not encouraging. The government's main refinancing program has helped far fewer homeowners than expected given the estimated 4 million homeowners who are still eligible.  Its loan-modification program for distressed borrowers has proved even more disappointing.

As for the private sector, the legal and economic mechanisms that are supposed to force a solution -- such as foreclosures and renegotiated deals -- also have been largely ineffective.

Dane Hahn is a real estate professional practicing in Englewood, Florida.  He can be reached at 941-681-0312 or by email at  See him on the web at

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