What is Affordable in Today's Market?
What is affordable in today's real estate market? Using the classic definition affordable means the ability to purchase a home with a 20% down payment while qualifying for a conventional 30-year fixed rate mortgage under traditional lender guidelines where the borrower's mortgage payment does not exceed 28% of total household income.
Since 2000 home prices have risen and the Anne Arundel County Housing Affordability Index has fallen. Throughout most of 2001 housing was quite affordable. When the index is at or above 100, the typical borrower whose household income exceeds the median income level for that period will have enough income to meet the debt-to-income qualifying ratio of 28% to purchase an average priced home. In 2001 the median income was reported by the Maryland Department of Planning as $57,800. So for much of 2001 borrowers had sufficient household income to meet lender requirements to purchase a $210,000 home.
During the last six years lenders have relaxed guidelines and introduced new products whereby borrowers qualify for more expensive homes on the same or less income using, for example, an interest only mortgage. Borrower's income has not kept pace with the increase in the cost of housing. While the average sales price has doubled since 2001, the median income was calculated at $66,050 in 2006. Many borrowers no longer qualify for mortgage loans using traditional lender guidelines. Furthermore, lenders have tightened guidelines in response to the sub-prime mortgage meltdown.
The mortgage engine that has fueled the growth in local home prices - loan products requiring lower debt-to-income ratios - has stalled at today's prices. Until the lenders introduce new products enabling buyers to purchase more expensive homes on less income, or buyers bring more down-payment to the settlement table, sales volume and sale prices are likely to continue to loose traction and continue to fall.
More information about housing affordability can be found online at www.MarylandEconometrics.com.
In Conclusion
If you are thinking about buying or selling a home or know someone who is, for a confidential, private, professional consultation without any obligation to discuss today's real estate market, please contact Stephen Howell at 410-923-3217.
If you are interested in buying or renting a home in Annapolis, Maryland or the surrounding area and want to tour any property currently on the market, or if you have a home to sell or rent in Annapolis, Maryland and want a professional consultation on current market conditions, please contact me at 410-923-3217 or e-mail me at showell@cbmove.com or visit my website at LiveInAnnapolis.com.
Stephen Howell came to Annapolis to sail the Bay in 1994. What he discovered was a whole new lifestyle. Ever since Stephen Howell has been successfully helping others make the most of Annapolis. You'll find that with the right professional by your side, you can Live the Lifestyle and Live in Annapolis.
Stephen Howell and Rocky (his lab-mix from the SPCA of Anne Arundel County in Annapolis) live on the Chesapeake Bay near Annapolis, Maryland. He works in the Annapolis real estate market. His website lets people search the Washington and Baltimore metropolitan area MLS. Buyers can also search for waterfront homes along the Chesapeake Bay. His website has current real estate data on Annapolis, Anne Arundel County, and Maryland.
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