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Thursday, December 29, 2005

I had to Walk Barefoot for Two Miles in the Snow to Buy a House

Whether houses are more or less expensive than in the past depends in part on the time period examined. House payments as a fraction of income are lower today relative to the early 1980s, but higher than in the late 1990s:

Twenty Years Later, Buying a House Is Less of a Bite, by David Leonhardt and Motoko Rich, NY Times: Despite a widespread sense that real estate has never been more expensive, families in the vast majority of the country can still buy a house for a smaller share of their income than they could have a generation ago. A sharp fall in mortgage rates since the early 1980's, a decline in mortgage fees and a rise in incomes have more than made up for rising house prices in almost every place outside of New York, Washington, Miami and along the coast in California. ... Nationwide, a family earning the median income - the exact middle of all incomes - would have to spend 22 percent of its pretax pay this year on mortgage payments to buy the median-priced house ... The share has increased since 1998, when it hit a low of 17 percent ... Although the overall level has reached its highest point since 1989, it remains well below the levels of the early 1980's, when it topped 30 percent. ... Beyond cost, many families who simply could not have bought a house 10 or 20 years ago find themselves able to do so, thanks to changes in the ways banks lend money. In the past, a home buyer often needed to make a down payment equal to 20 percent of a house's value to get a mortgage; today, little or no down payment is common...

For me, it wasn't the price that was the biggest hurdle to buying a house the first time, the payments would not have been much different than the rent I was paying. It was the 10-20% down payment that was the barrier. Going through the whole process is still no fun, but it's better than it used to be.

    Posted by on Thursday, December 29, 2005 at 02:15 AM in Economics, Housing | Permalink  TrackBack (0)  Comments (7)

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