Are Homes More Affordable in 2008?

There were many factors in 2004 that were driving up home prices including the cost of land, increased infrastructure demands and the seemingly endless increases in fees being added by local governments such as school, road and even in at least on case a museum impact fee. The cost of the permits and impact fees was often $25,000 or more before the house was even started.

As I write this over Labor Day Weekend 2008 the value of most homes in America is down from where they were in 2005. The question is does that make housing more affordable.

The housing market, of course, is not a market driven by a single factor so the selling price of the average home is not the only factor. To buy a home nearly everyone needs a mortgage. After the boom days of the early 200's when anyone could get a mortgage the banks and regulators have over reacted and made it hard for even qualified people to get mortgages. If you cannot get a mortgage the price does not matter.

Most people need to sell an existing house in order to afford a new home. If the equity in their home has disappeared they cannot use it to buy the new home. If they cannot sell the home they cannot take advantage of the down market.

So who can benefit from the down market? Someone with a lot of cash who does not need a mortgage and does not have a house to sell. First time home buyers need a mortgage. Everyone else has a house to sell.

It would be easy to blame the builders, developers and bankers for the problems but that would only be part of the story. Everyone benefited; municipalities got more concessions, the economy was healthy enough as housing carried the rest of the economy on its back, homeowners gained equity as their homes appreciated, and easy mortgages made getting a house within reach of more people than ever before. While it is true that some of those mortgage got families in trouble it is also true that many many more were able to get and keep homes that they would not have been able to afford today.

So those who looked forward to the bursting of the housing bubble to make housing more affordable have not gotten their wish. Homes today cost less but are less affordable than they were three years ago.