Experts: Affordable housing is a pipe dream

Homeownership is a pipe dream

Home buyers in all major markets are pinching pennies even tighter than last year to purchase the pads of their dreams.

Interest.com’s second annual Home Affordability Study recently graded the ability of a median-income household to buy a median-priced home in 25 of the top markets of the country. The results? Not good — affordability is down across the board. But maybe that just means home buyers need to shop harder and smarter.

We have Andrea Heuson, a finance professor at the University of Miami, and Michael Lea, director of the Corky McMillin Center for Real Estate at San Diego State University, helping us analyze the data and opinions on why their respective metro areas flunked our test.

1. What are your initial impressions of your city’s rank, year over year?

Heuson: I am not surprised at all (Miami earned a D- in 2012, an F in 2013). We have a limited supply of land here, so supply of housing can't keep up as demand increases. This leads to very dense development in attractive land areas, and the concentration of people supports amenities and culture and all the other aspects of city life that attract residents. Also, improvements in technology free people from having to live close to where they work. As they become less tied to a specific location, they gravitate to areas that have amenities, weather, good transportation, etc.

Professor's Profile:

Lea: I am not surprised by San Diego’s rank (San Diego earned an F in 2012 and 2013). The combination of developable land shortage and desirable location mean that San Diego will always be one of the nation’s least affordable housing markets.

2. What do you believe is the greatest contributing factor(s) to this year’s rank as compared with 2012?

Heuson: We are a gateway city, especially to Latin America. Political instability in Argentina and Venezuela, or economic turmoil such as the developments in Brazil, make real estate investments in the U.S. attractive. Also, low U.S. interest rates keep the value of the dollar low, so prices of luxury-type units look cheap to foreign buyers (our oceanfront condos are cheaper in Brazilian currency than condos in Rio are if you are Brazilian). There is no doubt that foreign buyers are still an important component in our market. New York is attractive to European buyers, and the California cities are attractive to Asian buyers.

Lea: A change in the mix of houses being sold. There has been a significant drop in distressed sales in the lower tier of the house price distribution and an increase in transactions in the upper tier. One must be careful in discussing affordability at the metropolitan level as house prices and incomes vary significantly by ZIP code.

3. The Fed announced it won’t begin winding down quantitative easing (QE) – how will that affect home buyers, rankings?

Heuson: Interest rates have been so low for so long that anyone who qualifies for a mortgage already has one. I doubt we will have large increases in income here, especially since we have so many undocumented service workers in the hotel industry, and prices will probably continue to rise so I don't think Fed actions will have any measurable effect on our market.

Lea: A wind-down of QE will lead to higher mortgage rates. This will reduce affordability for those buyers using mortgages. It may also slow the rise in house prices with some affordability offset.

4. Do you expect your standing to improve or decline in 2014?

Heuson: I expect the situation to be worse from an affordability standpoint next year. Prices have stopped falling, stabilized and started to rise. New condo developments are hitting the market, raising the high end, so if the low end remains constant and the high end rises, the median will rise.

Lea: Stay the same.

Special thanks to Andrea Heuson, Michael Lea and the University of Miami and San Diego State University, respectively, for contributing to this analysis.

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  • Angelo_Frank

    The West Coast is already in 'bubble' territory. Take a gander at the meteoric rise in home prices in the San Francisco Bay Area. It makes the last bubble before it popped look mild in comparison. The only question remains is how long this trend will continue until there is no one to sell properties to again?