Tuesday, July 05, 2005

Incomes and Home Prices

Our homes are intertwined with our lifestyle choices -- the location, property type and costs of where we choose to live affect our day-to-day lives and most of our financial decisions. One thing that has fascinated me about the current real estate boom is that wages and incomes have stayed relatively flat while the costs of homes skyrockets. This article talks about some of the issues and pitfalls surrounding mortgages in the current climate:
"Particularly in urban and coastal areas, these local bubbles are characterized by a frenzy of speculation, home turnover and large margins between median house prices and median incomes. In California, for instance, the median household income is $53,540, but the median house price is currently $488,600. To qualify for a traditional fixed-rate mortgage for such a house, a buyer would need to earn almost twice the median income.

In part, house prices are being pushed up by those purchasing multiple homes—three-fourths of all homes for sale are bought by owners of multiple homes, with the intention of converting them into rental units, or “flipping” them back onto the market after remodeling in order to turn a profit. Those in the working class who are seeking to buy are thus effectively and systematically out-priced by the voracious demand of speculators, driving demand, competition and prices still higher."

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