The California Association of Realtors (CAR) recently announced a new index to measure home price affordability for first time buyers. The distinguishing feature of this new affordability index appears to lie in its looser definition of what exactly is affordable: whereas the prior index assumed a 20 percent down payment and a maximum of 30 percent of household income spent on housing costs, this new index allows for a 10 percent down payment and up to 40 percent of income devoted to house payments.
This is entirely ridiculous. Buyers now shell out a record portion of their earnings for home payments, as well as taking on previously unthinkable levels of debt in order to purchase their homes. The fact that people are so commonly forced to stretch their fiscal limits does not, as CAR would seem to imply, indicate that it is now more affordable to do so. It means precisely the opposite.
Rich, I generally love all
Rich, I generally love all that you do on this site, but let’s be clear. No buyer is “forced to stretch their fiscal limits.” They choose to do so, and then they often smugly remind us renters of how great they are for “owning.”
I say let them and their illusory “wealth” rot in the coming blood-letting of this tsunami of a downturn. To quote the great Cornholio, “[t]he streets will flow with the [financial] blood of the non-believers [and their Realt-whoresTM].”
http://www.dailynews.com/busi
http://www.dailynews.com/business/ci_4222440
“In the Los Angeles-Glendale-Long Beach area, just 1.9 percent of new and previously owned homes were affordable to those earning a median family income of $56,200. The median sales price during the period was $521,000. ”
1.9%!