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Property Affordability Now at Record Levels


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If you are trying to pursue a short term flip strategy, you may not want to read this post because you might get depressed.  But if you are a long term investment property owner, you’ll be ok sooner or later so feel free to keep reading!

For the past 20 years, something called the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) has been published quarterly to assess the affordability of the housing market at that particular point in time.  Well, the HOI was recently released for the 1Q 2011 and properties are now more affordable than they have ever been in the history of the index.

The 1Q 2011 HOI showed that nearly 75% of houses sold in the quarter were affordable to families earning the national median household income of $64,400.  The previous high water mark was the prior quarter (4Q 2010), which came in at just under 74%.  In fact, the 1Q of 2011 represents the 9th quarter in a row that has seen the HOI exceed 70%; prior to 2009 the index never eclipsed 70%.

Obviously some markets have more “affordable” housing than others.  Amongst major markets, Syracuse, NY took the #1 spot with a 94.5% affordability rate, followed by Youngstown, OH, Indianapolis, Troy, MI, and Toledo, OH.  The least affordable properties are located in or around White Plains, NY (24%), followed by San Francisco, Los Angeles, Honolulu, and Anaheim.  So I guess the main takeaway here is that you should not be looking at buying a property in the major metropolitan areas of New York or California unless you are making a boatload of cash.

In terms of investment properties, assuming you have a long term investment strategy there is nothing you can do other than to wait it out.  The main downside of this trend is that buying a home is actually more affordable than renting a home in some markets.  Thus, if you have rental properties in highly affordable markets, being a landlord is probably more difficult because the best tenants are currently able to buy their own home and hence you will likely be stuck with bottom-of-the-barrel tenants who can’t afford much of anything.  Just stick with it, because this trend will not last forever.



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