Housing Affordability Crisis 2014

“Figures don’t lie”, was the first part of a phrase my business partner used to say, and then he would follow that by saying, “but liars sure figure.”  It’s the kind of country wisdom we used to throw around 20 years ago in New Hampshire. But I submit, given a few minutes and a paper and pencil, a good statistician can make any set of data support whatever side you are on.

 

And so I smile when I see on TV or read in the paper that there are no affordable homes in many towns across the USA. This story would be a call to arms, if it were true. The story goes on to say that many neighborhoods are simply too expensive, and something must be done! Usually this headline leads into a story that highlights two or three “expensive” neighborhoods, with tree lined streets and huge gated homes. The TV camera pauses on one or two for sale signs—and the newsreader shares just how critical the unaffordability of these homes are to America.

 

The thesis of the story is the lack of affordable housing. To be more specific, the story is about how low the US average income is, compared to how high the average sale price is. And that’s about where the story ends. You the viewer or reader are left knowing there is a crisis but that there is no solution. And then they go on to the next story.

 

But is there really a crisis? I say no. About 35% of Americans rent a place to live, and  65% are presently home owners. The housing crisis occurs when a would-be buyer can’t afford to buy the home they want in the neighborhood or area of their choice. In all my years in selling real estate, I have never had one client who wanted to pay more for a house than the seller was asking. Every buyer client I represented wanted to spend less than the asking price.

 

Every seller client wants “all the money”. I would suggest that 35% of my sellers have said to me at least once, “I’m not going to give it away.” Sellers tend to think Realtors are trying to get the price down to sell the house quickly. While it’s true the price of a resale house is often suggested by the Realtor, but “set” (contractually agreed to) by the seller. So the affordability problem is really with the seller.  Sellers don’t always ask the “right” price from day one.

 

Because it’s true that every house sells, sooner or later, I contend that every house is or becomes affordable. A house that sits on the market for months and months, sometimes for years without selling, is probably overpriced (you can call that one not affordable).  But once the seller agrees to make the needed modifications—and sometimes that’s only a price change—the house sells.

 

Experts, and by experts I mean lenders, think that you can afford about three times your annual earnings when you buy a home.  This is only a rule of thumb and does not take into consideration your credit scorer, credit history, or other debt you may have (like boat, motorcycle or school loans). But let’s say you want to buy a home for the family. If you earn $50,000, you can probably swing $150,000. 

 

All houses are not the same, to get the most house for your money, you must understand the variables.  Location affects price.  Even a tiny home on the beach will cost a pile of money. But if you pick a moderately priced area, you will find value as well as livability. Age of the house will affect price, and square footage will also be a factor.  The average resale home in Sarasota county sold this year for about $121 per square foot, but other areas sold from as low as $50 per square foot range. As a rule of thumb, new construction is running about $150 per square foot. So do some homework before you go out to see what’s for sale. Knowing what you want may save you the depression of concluding that nothing is affordable.

 

Statistics: Lemon Bay on average is only 1 foot deep.  But boats in the channel note that the average depth is over 6 feet. Likewise the average cost per square foot of a house does not mean you can’t find an acceptable affordable home. The data says on average, houses sell for $155,200 and cost $121 per square foot in this area. Meaning that the average house is 1,282 square feet. Does that mean you can’t find one for less, even a lot less? Not at all.