Last week we talked about the headlines on the state of real estate in Phoenix as reported by the news media. We saw that the problem is, no one can see beyond about 3 to 6 months’ time, which is why organizations often contradict themselves in their predictions. To really nail this issue we’ll look soberly at two final headline topics. To assist me is Tina Tamboer, from the always insightful The Cromford Report.
First up, Affordability:
Look at how fast and ridiculous these headlines occur.
August 13, 2013, Housingwire – “Only 69.3% of homes were deemed affordable.”
That’s actually a very good number. Between 60% and 75% is normal. If it’s much higher than that means that luxury is not selling. You have to have a certain percentage of luxury in your market. Day after day after day, you can see headlines about how horrible that roughly 69% is, but it’s actually a good number. ~ Tina Tamboer, The Cromford Report
August 14, 2013, DS news.com – “Housing Affordability Drops To 4-Year Low Ends Rates, Prices Rise”
To say that housing affordability drops to a four-year low makes a person feel like saying, “Oh my God, ‘We’re in a bubble.’ But when you look at it, we were in such crazy affordability. When 87% of all homes that sell are affordable to a family making the median income, that’s really high. That just means that there isn’t any luxury selling; that that $500,000-$900,000 market is dead. There was no jumbo financing available for anyone to buy that doesn’t conform to a conventional loan. So, as the jumbo financing came back in is when you see that luxury market start taking market share and then you see your affordability rate go down. People think it’s bad, but it just means that luxury is coming back. ~ Tina Tamboer, The Cromford Report
August 16, 2013, Wealth Daily – “One Homes Aren’t Affordable.”
August 18, 2013, USA Today – “Housing Affordability Falls With Rising Prices”
August 26, 2013, NBC news – “Home Prices Across the US Defy Gravity.”
September 17, 2013, The Week – “Is Housing Affordability Going Down The Drain?”
Look at that one month spread between mid-August and September 17. The headlines have affordability just dropping down until they declare it’s going down the drain. Such dramatics. Seriously? Give me a break.
Here’s an example of conflicting headlines. Even on the same day. This is about interest rates.
October 1, 2013, US Finance Post – “Mortgage Rates Rise For The First Time In Three Weeks, October 1.”
October 1, 2013, Zillow – “30-Year Fixed Mortgage Rate Continued Downward Spiral.”
October 2, 2013, Mortgage News Daily – “Mortgage Rates Paralyzed By Uncertainty.”
So how’s the consumer supposed to gather their information online? Do you believe everything you read? If you see on the Internet it must be true, right? It’s hard to figure out what the truth is, among so much drama and so many differing opinions. Unless you’re knee-deep in this stuff every day it can become very difficult to figure out whether you should buy or not.
The answer is knowing what to pay attention to more than who and educating yourself.
That’s really the key.
That’s where the data comes in to help you on your individual level. For example, it’s true the data shows that payments today are similar to those in 2008. But it also shows that they’re similar now to 2003 levels. It’s just above $1000 a month. At the peak of 2005, you would’ve paid $1900 a month for a 2000 square ft. home, paying $375,000. Today, that same home is just over $250,000 and your payment is just over $1000 a month; which is just where it was in 2003. So actually, now we are at 2005 prices and 2003 payments. ~ Tina Tamboer
All the media talks about is that affordability is the lowest it’s been since 2008. They just didn’t go back far enough. If you go back farther, that’s where you see that we’re not in a bubble. We are not in a bad situation.
This chasm is what a bad situation really looks like:
The point of this graph is the comparison between where we were in mid-2006 and where we are now at the tail end of 2013. We’re not seeing anything very alarming. We’re coming back down to normal (blue rectangle) after a period of extremely unusual affordability.
If you want to buy or sell, and you want the truth in the headlines you’re reading, please give me a call at 602-456-9388 or email me at email@example.com.