THE FIRSTTHING I ALWAYS SAYWHEN SOMEONEASKS ABOUTTHE ‘AFFORDABILITY CRISIS’ IS THATTHERE IS NOAFFORDABILITY CRISIS. APPRECIATION ABSOLUTELY IS SLOWING, BUTTHATMEANSAN INVESTOR CONSIDERING PURCHASING RENTALS, FOR EXAMPLE, SHOULD LOOKAT THE INVESTMENTANDASK THEMSELVES, ‘IF I BUYTHIS RENTAL INTHISMARKET, HOWMANYPEOPLE [SHOULD I EXPECTTOBE] ATTRACTED TOTHISMARKET?’ PART OFTHEANSWERWILL FREQUENTLY INVOLVE HOUSINGAFFORDABILITY IN THATMARKET.”
DOUG DUNCAN
housing options at affordable levels either through acquisition strategies that enable them to keep costs down or creative financing or renting structures that keep monthly rents at that magic “one-third of local median income” rate will likely find their properties selling or renting while others stagnate on the market or sit vacant. “There has been no change in the attitude about owning a home,” Duncan said, noting that millennial buyers, now the largest generational home-buying population in the country, ultimately value homeownership as much as their predecessors – and there are more of
them. “90 percent of millennials say they want to own a home. In the longer- term, that is a reason to be optimistic. However, in the short-term, it could be a tough market because interest rates are going up,” he said. However, Duncan added, “If you are in the business of providing homes that people want to live in, then it is a good business to be in.” •
UNDERSTANDING HOUSING AFFORDABILITY
Housing affordability levels are generally measured through consideration of a local market’s median household income and the household income necessary to qualify for a 30-year fixed-rate mortgage to fund the purchase of a local median-priced house. Conventional wisdom states that in general, the best chance a
homeowner has of qualifying for such a mortgage is to put no more than about one-third of their household income toward that monthly payment, and generally the same is assumed to be true for renting. In reality, however, housing affordability is a far more complicated topic, since the issue is not so much how much you
should allocate for housing, but how much you must allocate for housing in order to live in an area. Many borrowers opt to put as much as 36 percent of their income toward their monthly payment before paying basic expenses like utilities and homeowners insurance, and, in some areas of the country, renters find themselves putting much more than half of their income toward monthly rents.
Conclusion: An investor whose investment strategy permits them to profitably offer housing options to local buyers and renters seeking to spend the recommended portion of their income on housing will likely have no trouble selling properties or filling vacancies.
Carole VanSickle Ellis is the editor of Think Realty Magazine. She can be reached at cellis@thinkrealty.com.
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