Housing appears to be more affordable today than it has been in other periods of our history, for numerous reasons. Read this entire post; it is well-researched and argued.
“People aren’t really shopping prices,” said Bill Trask, a broker at Coldwell Banker Friends and Neighbors Realty in suburban Portland, ME. “They’re shopping payments.”
A monthly mortgage payment (MMP) is the product of a debt service constant (DSC) times a purchase price (PP).Â But simple algebra reveals, of course, that:
… if debt service costs go down, prices go up but affordability remains unchanged.Â And debt service costs have gone down:
The sharp fall in mortgage rates – from above 10% through most of the 1980’s to less than 6% in the last few years – is the main reason.Â Upfront mortgage fees have also dropped to about a third of a percentage point of a loan’s value, from 2.5% 20 years ago.
But relative to the Charlottesville market,
The median sales price for the entire market area in 2005 was $255,000 which is $30,000 more than the previous year’s figure. Nelson led the way with a median price of $300,000 (up 28%) followed by Albemarle $285,000 (up 8%), Charlottesville $247,428 (up 12%), Greene $234,900 (up 31%), Fluvanna $230,000 (up 24%), and Louisa $205,200 (up 19%).Â The overall market, including properties outside the areas listed, increased by 13% to a median price of $255,000.Â (Note: Albemarle’s median price increase was lower than other areas because of a significant increase in affordable condo units.)
The Charlottesville region’s average income is $56,487 and the median income is $45,022. Source: TJPED (pdf) The median income for the City of Cville is significantly lower than that of Albemarle – $33,122 -v- $54,604, but the affordability issue is a regional one, not one that is specific to the City.
You do the math.
Im confused by the numbers. Does this mean that the median price in Nelson was higher than Albemarle? I thought Albemarle was the most expensive jurisdiction by far. What explains this? Is it the rise in sales around the Wintergreen area?
I attribute this to two things – 1) GIGO – garbage in, garbage out – all the data in the MLS is not entirely accurate, due to poor user input in many cases and 2) the number of condos that have been converted and sold – Hessian Hills for one sold well over 50 (I’ll pull the numbers later) for less than $175k – this definitely skews the numbers a bit. And three – the MLS (source of the data) does not comprise all transactions.