I caught a press release this morning in my inbox for something called the Parade of Affordable Homes:
The Parade of Affordable Homes(SM) event is designed to be both fun and educational for those contemplating homeownership for the first time. This event is free and open to the public and organizers encourage you to visit http://www.affordablehomeparade.org/ to browse Parade Showcase Homes and plan your personalized tour.The Parade of Affordable Homes will initially take place in King, Snohomish, and Pierce counties and will last over two weekends, June 16 -17 and June 23 - 24. Almost thirty traditional and non-profit builders have joined the Tacoma-to-Everett Parade to showcase a variety of homes priced from $160,000 to $350,000.
So far, their website showcases a grand total of 29 homes, with all but 5 of them clocking in at the top of the range, with sticker prices of $350,000. By my calculations, a $350,000 house is “affordable” (as in, the mortgage principal + interest payment on a 30-year fixed is no more than 30% of gross income) to families with incomes of $69,000 or more, assuming they are somehow able to pony up the $70,000 down payment, that is. That sounds like the average King County family. Most people I know have an entire year’s salary sitting in the bank… not.
“With the high cost of housing in the Puget Sound, many working families are essentially locked out of homeownership,” states Jeff Caden, the Executive Director of WHC. “The goal of the Parade of Affordable Homes is to provide information to prospective, lower-income, first-time homebuyers about the available gap financing programs that may allow them to achieve home ownership. Most eligible people aren’t aware of these programs, and the Parade of Affordable Homes event can be critical in spreading the word while linking them with more affordable housing inventory.”
Although I am aware of many such programs, I haven’t looked extensively at the details of the kinds of “gap financing” programs Mr. Caden is referring to. They must be some pretty amazing programs though, if they’re targeting “lower-income” (i.e. - below median, likely with little to no savings) families with homes that are barely even in reach of a median household with a far-greater-than-median down payment saved up.
It is hoped that as a result of this event, buyers’ perceptions about their first home will begin to return to that of a modest, yet comfortable, “starter home”. According to research done by WHC, one of the greatest barriers to homeownership for first-time buyers is “not finding a home that they like.” Caden adds, “We hope that our clients can reset their expectations so they can return to living within 1100 square feet as well as within their means.”
Okay first off, the “starter home” concept makes no sense at all when you actually run the numbers. I’ll save the details of that for a later post. Secondly, as long as we’re “reseting expectations” here, how about we figure out that home “ownership,” while certainly desirable, is not the be-all, end-all of existence. When it makes far more financial sense to rent, why are we encouraging lower-income families to buy?
Their heart seems to be in the right place, but their heads… not so much.
(Washington Homeownership Center, Press Release, 05.30.2007)
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7 responses so far ↓
1
deejayoh
// May 30, 2007 at 2:19 pm
Question:
How can home ownership be at an all time high, yet the press is reporting that rental vacancy rates are decreasing - when we know that we are adding to our housung stock faster than our population is growing?
any votes for a whole lot of vacant infestor-owned units out there?
2
Ravenor
// May 30, 2007 at 2:48 pm
When considering affordability, you have to factor in the reality that in most households both parents work. Assuming that both parents earn around $45k per year which is around the median for white-collar work in Seattle, that pencils out to $90k gross income. That makes the $350k asking prices not that far out of line for a single family detached home.
If the income-earners make less than the $45k each, townhomes/condos are what they will have to accept. Ironically, one of the key drivers of home price inflation has been the trend throughout the country towards both parents in a home working. A big chunk of the additional income that resulted from the shift to single-income to double-income families went into housing; initially homebuyers were able to buy a lot more house, but as households jumped on the double-income bandwagon that drove prices up as builders realized they could raise prices without increasing house size further. Now, first-move-up homes are out of reach unless a household has two median incomes.
3
Chris
// May 30, 2007 at 3:47 pm
That line of reasoning may work over the short term, but over longer terms economic theory suggest new entrants with emerge to undercut prices back to a rational economic profit, based upon construction prices + “x” margin. The problem with affordability is that costs have out paced gains in income in real terms. Costs created prices that drove the need for two-income households (or relative lack of income), not the other way around.
FYI - Homesight is an affordable for sale housing group you might want to look into.
4
kpom
// May 30, 2007 at 3:57 pm
Median income for a **household** in King County is 57K. Obviously, a lot of couples do better than that, but the idea that a $350K “starter home” is affordable with conservative financing to “lower-income, first-time homebuyers” is ludcrious. The only way they can “afford” that is with a neg-am suicide loan.
5
Denny Retrograde
// May 30, 2007 at 4:13 pm
What a find! The “Washington Homeownership Center” has a website, which if you dig a little yields the following Board of Directors. See if you can spot the industry lean here:
- Janice Navarre, President, Department of Community, Trade and Economic Development
- Leigh Bezezekoff, Vice President and Secretary, HomeStreet Bank
- Randy Robinson, Fannie Mae
- Kim Toskey, Eagle Home Mortgage
- Mia Vermillion, Countrywide Home Loans
- Amanda Apodaca, Peak Systems
- Karla Lynch, ENSO
- Paula Benson, Freddie Mac
- Jim Boudreau, First Mutual
- Anna Landa, Community Voice Mail
- Jane Bloom, Parkview Services
- Bob Wold, Windermere
- Ryan Maxwell, HomeStreet Bank
Their “supporters” page lists twenty real estate & bank companies, HUD, and the Seattle Foundation.
6
Eleua
// May 31, 2007 at 8:54 am
When considering affordability, you have to factor in the reality that in most households both parents work. Assuming that both parents earn around $45k per year which is around the median for white-collar work in Seattle, that pencils out to $90k gross income. That makes the $350k asking prices not that far out of line for a single family detached home.
Ask yourself…is that $90K/household common among “first time” home buyers? How old is the dual income phenomenon?
I’m pushing 40, and I can not ever remember a time where the standard homeowner wasn’t a dual income earner. If that is true, why is it just the last 4 years we have seen this epic runup?
KPOM is correct. Neg-am suicide loans are needed to make this idea work. That is unsustainable - even in Seattle.
7
Ravenor
// May 31, 2007 at 12:32 pm
Elua, you are correct that the recent price run-up has in large part been due to buyers using foolish loans such as the teaser-rate ARM’s and the negative amortization loans. So when the ARM’s adjust and the negative amortization gets too big, we should see a lot of these homes come back on the market as short-sales or foreclosure sales…which should push prices down.
The dual-income phenomenon has been around for a long time; started at least in the 1970’s.
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