The red-hot market has made owning a home out of reach, not only for low-income families but also for many white-collar professionals. "Many of the overheated real estate markets throughout the country have become unaffordable for the majority of the population," said Jack McCabe, a housing industry analyst in Deerfield Beach. "Many people are paying well over 50 percent of their income for shelter. It leaves no money for savings or sometimes even for recreation."
After So Young Kim took a job in Florida, her friends in Chicago gushed that she and her husband would be able to afford twice the house when they moved. Kim had received a doctorate and a job offer from a university that would double her salary to more than $47,000. But the prices of even small bungalows climbed far beyond what the young couple could afford even when they stretched their price to an uncomfortable $300,000. So after several disappointing drives around the area and countless Internet searches, they ended up back where they started, in an apartment.
Real estate experts warn that housing prices in many markets are too quickly outpacing the incomes of most workers. The widening gap affects families across the country, from Washington D.C. and Rhode Island to Florida in the South and Nevada and California in the west.
In California, the situation has long been the worst: only 17 percent of households could afford a home with a median price tag in April, according to the California Association of Realtors. By May, the median home price in California climbed to $522,590, more than double the price in most other states. To buy the typical home with monthly payments of $3,067, a California family would need to earn about $122,700 to qualify for a conventional loan.
In other high-cost states, the situation is not much improved. The average family in Florida earns nearly $44,000, which fell 26 percent short of the amount needed to finance a median-priced home last year, according to a study by the Federal Deposit Insurance Corp. National statistics show that families can, however, afford a home in many other cities around the country. The typical household earns about $56,323, enough to buy a home costing $250,900 and 133 percent of what's needed to afford the median-priced home of $188,800, said Walter Molony, a spokesman for the National Association of Realtors.
The highest housing prices are explained by the same reason that has drawn the biggest spenders for years: location. The 10 most exorbitant cities include warm-weather climates along the coast, such as San Francisco and West Palm Beach, and huge urban centers, such as New York. To break into these hot markets, buyers are resorting to new and uncertain mortgages. "It's really tough for the first-time buyer. The only way to just get in the door is to take advantage of the low-interest rates and the riskier mortgage instruments like the interest-only loans," said Leslie Appleton-Young, the chief economist for the California Association of Realtors.
Buyers are choosing adjustable-rate mortgages or 40-year mortgages that allow them to stretch payments over additional years. Fannie Mae is offering a program that allows low- and middle-income buyers new ways to qualify. To help cover the cost of their mortgage payments, applicants use federal housing vouchers or rent they receive from relatives or others living with them.Kim said she feels the skyrocketing housing prices have left her and others behind, and that they have no chance of catching up. Since they moved into the rental apartment in Boca Raton, they have not even tried to look at any homes for sale.
By: Jill Barton, www.washingtonpost.com