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Recent studies indicate that the term “affordable housing” is becoming an oxymoron.
The National Association of Realtors® surveyed 1000 people in June 2006. By a 2-1 ratio, respondents believed that high monthly payments were the biggest obstacle to buying a home.
The perception used to be that the down payment and closing costs were the biggest obstacles to home ownership. Now people are worried that monthly income cannot be stretched to meet monthly bills.
In addition to the mortgage payment itself, people worry about the cost of putting gasoline in their car, the ever-increasing price of utilities, rising property taxes, escalating healthcare costs, and higher insurance premiums.
If they have an adjustable rate mortgage, they know that soon that payment will also be higher.
For Middle Americans, home ownership is not only their dream but also the surest way to build wealth. Many feel that dream is no longer reachable.
The hurdles to home ownership are complex. However, Los Angeles Mayor Antonio Villaraigosa succinctly summed up a large part of the problem, “…the fact that wages haven't kept up with the cost of real estate." While average hourly wages have risen about 20% since 2000, the national median home price has soared 55%.
Another large part of the problem is escalating land prices in most of the country, and NW Arkansas is no exception. Even as recently as 3-4 years ago, a few local builders were still building so-called "starter" homes. These were somewhat basic, but usually had about 1000-1200 square feet, 3 bedrooms, 2 baths, and ceramic tile in the wet areas. These were usually available in outlying areas like Elkins and other smaller towns. Even in some of the major towns, there were homes for under $100,000. I can remember some new homes costing even significantly less than that.
Builders are no longer able to build “starter homes.” Because land is so expensive, builders are forced to build a larger home on a smaller lot and charge more for it. The new "affordable" homes start at about $150K to $160K in the major towns of NW Arkansas, although it is possible to purchase a less expensive, smaller home in some of the outlying areas, such as Siloam Springs, Lincoln, and Gravette, etc.
Another reason for higher home prices is the impact fees many communities charge to help pay for everything from roads and sewers to police and fire protection to parks and other municipal facilities. The fees, which amount to several thousands of dollars, are passed on to the homebuyer.
Thus, for people of modest means, increasingly this means they must choose whether to live in their own home farther from their work or pay rent and live closer. But with gas prices so high, living farther away means extra transportation costs and that increases monthly expenses. People who would have purchased a home in the past no longer qualify for these more expensive homes.
In the meantime, the glut of high-end homes continues.
For more information:
http://realtytimes.com/rtmcrcond/Arkansas~Springdale~judyluna
http://www.realtor.org/housopp.nsf/pages/pulsesurvey2006
http://www.realtor.org/PublicAffairsWeb.nsf/Pages/NatlHsgOpPulseSurvey
http://www.usatoday.com/money/economy/housing/2006-06-26-affordable-homes-usat_x.htm
Showing posts with label cost of housing. Show all posts
Showing posts with label cost of housing. Show all posts
Wednesday, August 02, 2006
Sunday, February 26, 2006
My Take on the New Millken Report (see below)
The new Millken Report has NW Arkansas continuing in the top 10 nationally as a vibrant economic zone. However, there were two areas of concern for possible future trends in the area: a low rating on technology output growth (a positive rating on this factor leads to higher paying professional and high-skill jobs) and increased housing values, which are now at the national average. The two trends, together with the strong job growth rating, points to a strong economy with low unemployment. But that job growth is and will continue to be of lower paying jobs which require less education. This, in my mind, hints at salaries for the average working person not keeping up with the cost of housing, thus creating a potential crisis in affordable housing.
When NW Arkansas topped the Millken Report a few years ago ahead of Las Vegas, the region catapulted to the top of the national radar in many respects. In the real estate market all of a sudden, in addition to local investors, there appeared investors from all over the country looking for “reasonable” investment property, beginning the upward exponential curve in prices for low-end homes and multi-family properties.
What happened was that many of the older existing homes, previously priced under $100K, began creeping upward in price as investors competed with first-time and low-income home buyers. Homes in that price range became smaller and shabbier as prices continued to rise significantly over the past couple of years. Now it is almost impossible to find a livable home for under $130K. Most homes in that price range either need work or are very small or both.
Sometimes these small fixer-uppers are even priced higher per square foot than nicer, larger homes. As recently as 3-4 years ago (before NW Arkansas was #1 according to the Millken Report), an older home in Springdale usually was listed for and sold for under $55 per square foot in the under $100K price range. Now these same homes—many in barely livable condition—are listed for and sell for over $85 per square foot. Some even sell for over $100 per square foot if they are in excellent condition.
On the other hand, larger, older homes in the $150K-$200K price range--completely remodeled--are being listed and sold at between $75 and $85 per square foot. But a home like this is not a suitable “rent house” and there is still a lot of building going on in this price range. The law of supply and demand applies here.
A contributing factor is that because of escalating land prices and higher construction and development costs, almost no builders are making small “starter” homes any more. As these costs increase, the new starter homes are now larger than they were previously, but they also have significantly higher price tags. It is no longer possible to acquire a home like this for under $100K, whereas about 3-4 years ago there were several builders offering such new homes as low as $75K. But such homes are also great rent houses. With the increased competition from investors as well as the lack of construction of new homes at affordable prices, first-time and low-income home buyers are having a tougher time finding adequate housing.
Even rental prices are rising as a result. In 2002 an average newer duplex with 3 bedrooms on each side in east Springdale was listed and sold for about $120K or less, depending on condition. Rents for those duplexes were about $550-$575. Now rents have risen to between $600-$650 for those units, and those same duplexes are listed for sale at $175K or above and selling for a minimum of $165K. Even some 2-bedroom units are selling for $165K. And the new duplexes being built are listed at $200K or above. Supposedly these can be rented at $850 per side per month, but I wonder….
In any case, because home prices on the low end and multi-family properties are now so expensive due to increased demand and low supply, rents are also rising as units are sold.
Is affordable housing in NW Arkansas a thing of the past? I hope not.
When NW Arkansas topped the Millken Report a few years ago ahead of Las Vegas, the region catapulted to the top of the national radar in many respects. In the real estate market all of a sudden, in addition to local investors, there appeared investors from all over the country looking for “reasonable” investment property, beginning the upward exponential curve in prices for low-end homes and multi-family properties.
What happened was that many of the older existing homes, previously priced under $100K, began creeping upward in price as investors competed with first-time and low-income home buyers. Homes in that price range became smaller and shabbier as prices continued to rise significantly over the past couple of years. Now it is almost impossible to find a livable home for under $130K. Most homes in that price range either need work or are very small or both.
Sometimes these small fixer-uppers are even priced higher per square foot than nicer, larger homes. As recently as 3-4 years ago (before NW Arkansas was #1 according to the Millken Report), an older home in Springdale usually was listed for and sold for under $55 per square foot in the under $100K price range. Now these same homes—many in barely livable condition—are listed for and sell for over $85 per square foot. Some even sell for over $100 per square foot if they are in excellent condition.
On the other hand, larger, older homes in the $150K-$200K price range--completely remodeled--are being listed and sold at between $75 and $85 per square foot. But a home like this is not a suitable “rent house” and there is still a lot of building going on in this price range. The law of supply and demand applies here.
A contributing factor is that because of escalating land prices and higher construction and development costs, almost no builders are making small “starter” homes any more. As these costs increase, the new starter homes are now larger than they were previously, but they also have significantly higher price tags. It is no longer possible to acquire a home like this for under $100K, whereas about 3-4 years ago there were several builders offering such new homes as low as $75K. But such homes are also great rent houses. With the increased competition from investors as well as the lack of construction of new homes at affordable prices, first-time and low-income home buyers are having a tougher time finding adequate housing.
Even rental prices are rising as a result. In 2002 an average newer duplex with 3 bedrooms on each side in east Springdale was listed and sold for about $120K or less, depending on condition. Rents for those duplexes were about $550-$575. Now rents have risen to between $600-$650 for those units, and those same duplexes are listed for sale at $175K or above and selling for a minimum of $165K. Even some 2-bedroom units are selling for $165K. And the new duplexes being built are listed at $200K or above. Supposedly these can be rented at $850 per side per month, but I wonder….
In any case, because home prices on the low end and multi-family properties are now so expensive due to increased demand and low supply, rents are also rising as units are sold.
Is affordable housing in NW Arkansas a thing of the past? I hope not.
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