Housing is becoming more affordable

Jennifer McClelland | RSS | Wed, Nov 18 2009 | 0 Comments

In the United States, we know that home prices have fallen dramatically and therefore, housing has become more affordable. In the United Kingdom the same phenomenon is happening. After the Bank of England reduced interest rates in the country to half a percent, affordability of homes has increased since Q3 2007.

In 2008, the median home price in the United Kingdom fell 16% during 2008 and through this year, it hasn’t improved.

When calculating affordability of housing, there are two things that are taken into account: The rate of interest and the average earnings of citizens in that area. Even though unemployment in the United Kingdom is on the rise just as it is in the United States, housing prices seem to be falling at the same rate or even faster in some areas.

In some of the priciest areas of the United Kingdom, the home affordability percentage has increased. In London, the affordability percentage has come down from 56% to 34%. The number is so low that it is actually below the long term average.

The most affordable areas included Copeland in Cumbria, there the affordability percentage of 22% means that the interest rates are low and the disposable income is higher. Of course, there is always “the other side of the coin” where home affordability is still poor. North Cornwall is the “least affordable” area that was surveyed with 63%. South Buckinghamshire came in at 62%.

Even though affordability is on the rise, it can still be difficult for first time home buyers to get the loans they need for mortgages. In the United States, it is awfully difficult for anyone to get a loan, particularly first time buyers who may not have a lengthy credit report. First time home buyers are also being warned against buying a home right now because of the unsteady job market.

Even worse than the job market in the United Kingdom is the threat of negative equity in their homes. No one wants their home’s mortgage to be considered “underwater.” It is something frightening to consider when buying a home and even worse when you know that you’re paying on a mortgage every month that is now more than the house is worth. In this kind of economy, that is not always feasible…which is why many people have defaulted on their mortgages. For example in the United States, many people in California, Las Vegas and Miami all saw this problem. While other areas did witness negative equity issues, these were the worst. In some cases, the mortgage on their home was double what their house was really worth. When someone is faced with that and they have lost their job, I can understand why they don’t feel as though it is affordable to continue paying on their home.

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The English population is expected to increase; housing will follow

Tags: bank of england, north cornwall, average earnings

The Pitch – Does the falling median home price scare you?

Jennifer McClelland | RSS | Tue, May 12 2009 | 0 Comments

Does the falling median home price scare you?

Question:

The median home price in the United States seems to keep falling even when news about the economy is picking up. Does this news scare you at all and when do you think the median home price will stop falling?

Answer:
First, I don’t think the news scares me too badly only because the value will eventually go up. The price of homes (at least in my area) will go back up to where they were a year ago in the near future.

This gets me to the second point. I think that a home is one of the most sound investments a person can make. Owning a home is usually the cornerstone of wealth building in America. Many people are proud of the homes they own and in the near future (I would guess in the next two years) people will start seeing their homes as a sound investment again and the real estate market will perk up.

The housing prices in the area where I live (a small college town south of Memphis, TN) haven’t fallen as much as they have in other parts of the country. I am grateful that the prices haven’t fallen so much, but at the same time I know that the housing market has to pick up a bit in order for my house to be able to sell for a price I’m comfortable with so that we can move to an area where my husband and I are able to make more money. A college town may not be the best place to find work when you’ve graduated with a business degree in marketing.

However, looking at the current economic situation and the news that Ben Bernanke keeps coming out with, I think that the housing market will begin to pick up shortly after the economy starts posting growth versus contracting. The contractions are slowing down as well as the rise of unemployment, but until growth is seen, the median price of homes will likely continue to fall.

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Related posts:
The Pitch – Are you worried by the drop in average home price?
New home construction in the U.S. is up
Housing is becoming more affordable

Tags: sound investments, owning a home, sound investment