Home Buying: You vs Your Parents

HOME BUYING YOU vs YOUR PARENTS It is the first generation that has had The current generation of new homebuyers tens of thousands of dollars in student debt weighing them down while they are is experiencing one of the most volatile and attempting to break into what might seem to many as an unattainable housing market. confusing housing markets in history. PRICE /INCOME SELECT HIGH AND LOW "PRICE TO INCOME" AREAS PRICE TO INCOME RATIO 5 7.5 10 12.5 PRICE TO INCOME 2.5 Or, to be more precise, the Price to Income ratio is the national average median home price divided by the median family income. 1980- An old rule of thumb for figuring out what kind of a house you can afford is three times your gross income, minus the debts 1985 that you currently have. Historically, economists have placed this ratio at about 2.7. meaning that the average American's house costs 2.7 times that house's yearly income. This number has remained fairly 1990 consistent throughout the past 30 years. 1979 - YOUR PARENTS 1995 HOME PRICE HOSEHOLD INCOME $16461 $43457 2000 - PRICE TO INCOME RATIO $43,457 / $16,461 2.64 2005 TODAY - YOU 2010 HOME PRICE HOSEHOLD INCOME $50,054 141,652 LOS ANGELES • CA SEATTLE WA UNITED STATES AVERAGE AUGUSTA • GA DETROIT MI PRICE TO INCOME RATIO $141,652 / $50,054 2.83 %3D MORTGAGE PAYMENT / HOUSEHOLD INCOME = AFFORDABILITY What percentage of your income goes to mortgage payments? 40% UNITED STATES AVERAGE 30% While the price-to-income index does tell us a story about how much a house costs its owners, most people have the bank buy their house and subsequently end up paying 20% back what they borrowed over a number of AFFORDABILITY years. 10% A simple 1% shift in lending rates can completely alter the house a potential buyer is 0% able to afford. 1995 2000 2005 2010 1979 - YOUR PARENTS TODAY - YOU 30-YEAR MORTGAGE RATE PAYMENT WITH 20% DOWN 30-YEAR MORTGAGE RATE PAYMENT WITH 20% DOWN 11.7% $437/MO 3.73% $65441/MO DEBT RATIO DEBT RATIO $654 / $4,171.17 = 15.68% $437 / $1,371.83 : 31.85% Household income has changed dramatically since 1980. $23,300 2 OR MORE INCOME houses are For all borrowers, the AVERAGE DEBT in 2011 was UP 28% Debt percentile ranking 10% <$54,000 3% <$100,000 The current balance of FEDERAL STUDENT LOANS nationwide is $902 BILLION If the trends continue through 2016, the average cost of a public college will have more than doubled in just 15 years. with an additional $140 BILLION or so in PRIVATE STUDENT LOANS. CONCLUSION Like a lot of things, this generation will find that the "buy everything new" mentality of the fifties died with the twentieth century and that we're going to have to learn to do more with less. There are a few things you need to take "Breaking into the homeownership game today is no harder than it was for the baby boomers but we are getting less Depending on how you look at the question, we get very different answers as to into account outside of these, admittedly nice whether it's easier or more difficult for the but flawed, numbers. Credit card and student current generation of first-time homebuyers loan debt has grown significantly since the as compared to their parents. The Price to early 80's. Combine those with the fact that in Income index shows that home prices relative 1979 household income was made up of to household income are slightly higher than considerably more single breadwinners and for our money and we have more debt, however, less of that money is going to the banks." they were in 1979. However, If you take into the picture tells a different story. account mortgage rates and payments, getting a house has never been easier. SOURCES PRESENTED BY: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html https://robert.accettura.com/blog/2010/09/09/median-home-prices-VS-median-income/ Aloha Tony http://www.realtor.org/press_room/news_releases/2010/08/ehs_fall Hawaii Realtor http://moneycentral.msn.com/content/savinganddebt/p70581.asp http://www.census.gov/hhes/www/housing/hvs/annual08/ann08t14.xls http://www.benengebreth.org/2005/06/housing priceto http://usatoday30.usatoday.com/money/perfi/housing/2005-05-10-housing-cover_x.htm http://www.mybudget360.com/buying-a-home-in-america-today-is-expensive-thanks-to-the-banking-sector-examining- income-and-home-prices-from-1950-to-the-present-can-home-prices-fall-another-38-percent/ http://www.nytimes.com/2012/05/13/business/student-loans-weighing-down-a-generation-with-heavy-debt.html?page wanted=all&_r=1& http://www.ferc.gov/legal/acct-matts/interest-rates/archived-interest-rates.pdf http://www.bankrate.com/finance/mortgages/rate-roundup.aspx SALINAS CA 27 SAN LUIS OBISPO CA HONOLULU HI NATIONAL AVERAGE OKLAHOMA CITY OK HOME BUYING YOU vs YOUR PARENTS It is the first generation that has had The current generation of new homebuyers tens of thousands of dollars in student debt weighing them down while they are is experiencing one of the most volatile and attempting to break into what might seem to many as an unattainable housing market. confusing housing markets in history. PRICE /INCOME SELECT HIGH AND LOW "PRICE TO INCOME" AREAS PRICE TO INCOME RATIO 5 7.5 10 12.5 PRICE TO INCOME 2.5 Or, to be more precise, the Price to Income ratio is the national average median home price divided by the median family income. 1980- An old rule of thumb for figuring out what kind of a house you can afford is three times your gross income, minus the debts 1985 that you currently have. Historically, economists have placed this ratio at about 2.7. meaning that the average American's house costs 2.7 times that house's yearly income. This number has remained fairly 1990 consistent throughout the past 30 years. 1979 - YOUR PARENTS 1995 HOME PRICE HOSEHOLD INCOME $16461 $43457 2000 - PRICE TO INCOME RATIO $43,457 / $16,461 2.64 2005 TODAY - YOU 2010 HOME PRICE HOSEHOLD INCOME $50,054 141,652 LOS ANGELES • CA SEATTLE WA UNITED STATES AVERAGE AUGUSTA • GA DETROIT MI PRICE TO INCOME RATIO $141,652 / $50,054 2.83 %3D MORTGAGE PAYMENT / HOUSEHOLD INCOME = AFFORDABILITY What percentage of your income goes to mortgage payments? 40% UNITED STATES AVERAGE 30% While the price-to-income index does tell us a story about how much a house costs its owners, most people have the bank buy their house and subsequently end up paying 20% back what they borrowed over a number of AFFORDABILITY years. 10% A simple 1% shift in lending rates can completely alter the house a potential buyer is 0% able to afford. 1995 2000 2005 2010 1979 - YOUR PARENTS TODAY - YOU 30-YEAR MORTGAGE RATE PAYMENT WITH 20% DOWN 30-YEAR MORTGAGE RATE PAYMENT WITH 20% DOWN 11.7% $437/MO 3.73% $65441/MO DEBT RATIO DEBT RATIO $654 / $4,171.17 = 15.68% $437 / $1,371.83 : 31.85% Household income has changed dramatically since 1980. $23,300 2 OR MORE INCOME houses are For all borrowers, the AVERAGE DEBT in 2011 was UP 28% Debt percentile ranking 10% <$54,000 3% <$100,000 The current balance of FEDERAL STUDENT LOANS nationwide is $902 BILLION If the trends continue through 2016, the average cost of a public college will have more than doubled in just 15 years. with an additional $140 BILLION or so in PRIVATE STUDENT LOANS. CONCLUSION Like a lot of things, this generation will find that the "buy everything new" mentality of the fifties died with the twentieth century and that we're going to have to learn to do more with less. There are a few things you need to take "Breaking into the homeownership game today is no harder than it was for the baby boomers but we are getting less Depending on how you look at the question, we get very different answers as to into account outside of these, admittedly nice whether it's easier or more difficult for the but flawed, numbers. Credit card and student current generation of first-time homebuyers loan debt has grown significantly since the as compared to their parents. The Price to early 80's. Combine those with the fact that in Income index shows that home prices relative 1979 household income was made up of to household income are slightly higher than considerably more single breadwinners and for our money and we have more debt, however, less of that money is going to the banks." they were in 1979. However, If you take into the picture tells a different story. account mortgage rates and payments, getting a house has never been easier. SOURCES PRESENTED BY: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html https://robert.accettura.com/blog/2010/09/09/median-home-prices-VS-median-income/ Aloha Tony http://www.realtor.org/press_room/news_releases/2010/08/ehs_fall Hawaii Realtor http://moneycentral.msn.com/content/savinganddebt/p70581.asp http://www.census.gov/hhes/www/housing/hvs/annual08/ann08t14.xls http://www.benengebreth.org/2005/06/housing priceto http://usatoday30.usatoday.com/money/perfi/housing/2005-05-10-housing-cover_x.htm http://www.mybudget360.com/buying-a-home-in-america-today-is-expensive-thanks-to-the-banking-sector-examining- income-and-home-prices-from-1950-to-the-present-can-home-prices-fall-another-38-percent/ http://www.nytimes.com/2012/05/13/business/student-loans-weighing-down-a-generation-with-heavy-debt.html?page wanted=all&_r=1& http://www.ferc.gov/legal/acct-matts/interest-rates/archived-interest-rates.pdf http://www.bankrate.com/finance/mortgages/rate-roundup.aspx SALINAS CA 27 SAN LUIS OBISPO CA HONOLULU HI NATIONAL AVERAGE OKLAHOMA CITY OK