Friday, January 04, 2008

Million dollar views

A million dollars just ain't what it used to be.

Matt Woosley, writing in Forbes, says in most parts of the world "$1 million buys less than ever." He offers up a slide show of the tiny bits of terra firma and not so firma that fetch the million dollar price tag. Makes you kinda pity the poor millionaire.
"The growth of wealth in recent years is a real and substantial trend," says Liam Bailey, head of residential research for London-based property adviser Knight Frank. "Over the next five years, we believe the trend of growing wealth and greater wealth concentration will continue."
Guambat reckons it's the growth in inflated values, not wealth.

"[H]ousing affordability has reached dangerously low levels throughout Australia, a situation that has serious implications for the social and economic fabric of the nation as a whole."

In Canada, "Increases in house prices, mortgage rates, utilities and property taxes all combinedin the second quarter to deliver a severe hit to housing affordability. By a slim margin, the portion of before-tax household income going towards home ownership costs suffered one of its largest and most broadly based quarterly deteriorations in the current housing cycle stretching back to the mid-1990s."

See this 3rd Annual Demographia International Housing Affordability Survey: 2007 Ratings for Major Urban Markets Australia, Canada, Republic of Ireland, New Zealand, United Kingdom, United States (Data for 3rd Quarter 2006).

And these bits from December 2005, this WSJ Real Estate article on US home affordability has implications for all those "foreign soil" places where home affordability is being stretched to abnormal degrees:
Soaring house prices and higher mortgage rates have put homeownership out of reach for more people than at any time in more than a decade.

Housing affordability in October sank to its lowest levels since 1991, according to the National Association of Realtors' Affordability Index, a widely followed measure of the average household's ability to buy a home at current interest rates. In some areas, including New York City, Los Angeles, San Diego, San Francisco and Miami, housing affordability has dropped to levels not seen since the early to mid-1980s, according to mortgage giant Fannie Mae.

Affordability dropped by more than 20% in nearly two-dozen markets, including Phoenix and Tucson, Ariz., Spokane, Wash., and Orlando and Lakeland, Fla., according to the study. "You have to go back 25 years to find a decline that is as significant on a percentage basis," says Mark Zandi, chief economist of Moody's

buyers in all price ranges are feeling the pinch

affordability is forcing many home buyers to accept longer commutes

many first-time home buyers are being forced to lower their sights. In Phoenix, double-digit price increases are pushing many of these buyers to condominiums, to outlying locations or to blighted areas targeted by developers for renewal

"There's a systematic erosion of affordability," says David Seiders, chief economist of the National Association of Home Builders.

lenders have helped to offset declines in home affordability with creative mortgage products

Many borrowers have embraced creative mortgage products, such as interest-only loans, mortgages with teaser rates of as low as 1% and "piggyback" loans aimed at buyers who don't have the money for a down payment. In the third quarter, borrowers could boost their purchasing power by 26% by taking out an interest-only mortgage, which allows a home buyer to put off repaying principal for several years, instead of a standard mortgage, according to Moody's

In 57 of 379 metro areas nationwide, homes were so expensive in the third quarter that a family earning the median income couldn't afford the median-priced home based on traditional lending standards

In Tucson, roughly 60% of first-time home buyers make no down payment and instead now use 100% financing to get into the market

many first-time home buyers are using piggyback loans and 40-year mortgages

"We're getting creative with helping people get into homes"

But rising short-term interest rates have made many affordability mortgage products more expensive and the flow of new, creative mortgage products has begun to lose steam. On Tuesday, [now after the steam is being let out?] bank regulators proposed controls that would limit the mass marketing of some creative mortgage products.

Stephan Vrudny, an engineer who lives in San Diego, sold his three-bedroom condo to an investor in June for $405,000, then rented it back for $1,500 a month. Mr. Vrudny figures the arrangement is saving him $430 a month, even after taking into account the lost mortgage-interest deduction. "We'll be homeowners again when it makes sense again as an investment," says Mr. Vrudny, who had purchased the unit for $345,000 last year.'s easy reference library of studies on housing affordability from within Australia and elsewhere in the world


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