Great Crain's Article Yesterday on Housing Affordability:
The prolonged housing slump has produced a paradox: Local homes are more affordable than they have been in at least a decade, but not many people can -- or want to -- buy one.
The question economists and industry professionals keep asking: Why not?
Here is a look at a few proposed reasons and whether or not they are to blame:
Challenges Securing a Mortgage
2005 has come and gone, as have no-doc
liar's loans, 100% financing, and a slew of other questionable lending practices. It is more difficult for potential buyers with spotty credit history to secure loans, but qualified buyers are still getting loans.Most consumers have taken a hit on their credit score in recent months
While it may be more challenging for some to get a mortgage, there are plenty of qualified potential buyers that are either on the fence about purchasing, or are not willing to throw their hat in. Difficulty securing a mortgage may be a problem, but it is not the culprit.
Increased Down payment
Down payments are higher- especially for Jumbo loans (loan values of $417,000+). Buyers have other options. Many Condo buildings are actively seeking FHA approval. What does an FHA approved building get a buyer? Down payments as low as 3.5%.
There are plenty of FHA approved options and units with FHA approval are selling. Again, the down payment is a hindrance, but buyers can easily work around it.
Where Is the Bottom?
That is the question on everyone's mind.
Many would-be buyers are also nervous about taking the plunge, amid mixed signals about the direction of the job and housing markets. The Standard & Poor's/Case-Shiller index of Chicago-area single-family home prices declined 1.5% from August to September after rising for five straight months.
The bottom of the real estate market is a combination of interest rates and the market value of homes. Finding that sweet spot is largely luck as we won't see it until after it has passed.
What can be done to get buyers off the fence? We've had tax credits, affordability is very high, and yet inventory continues to grow. Any thoughts?