The Problems are the Path: Affordability

 The National Association of Realtors, NAR, creates and Affordability Index on a regular basis.  It really defines how the FED uses certain tools to determine inflation. It also gives insight on how various real estate markets will perform.  I see the CPI as being 30% home prices and rents.

The index is simple, the higher the number the greater the affordability.  The lower the number  the more unaffordable the area.  

Last letter I took a swipe at our state legislature and those who support multiple housing units in all the state towns.  I spent too many years in local politics not to realize that politicians want to get elected.  It is not logic of the laws they pass.  They capitalize on voter ignorance more than voter intelligence.  If the voter based elections on their representatives intelligent work there would be a 99% turnover in all political posts!  In my opinion and experience.

Woodside, as an example, is to put in multiple housing they would need a very large septic system.  The present sewer systems is limited in Woodside by capacity of the sewer project servicing Woodside.  Woodside septic systems are plagued with high water tables which flood septic drain fields.  Woodside has  impermeable soils, that makes the drain field unable to filter out the septic water.  Next is the cost of construction.  An acre of land in Woodside per San Mateo County Health will only tolerate a 3 bedroom 3 bath home's septic system.  5 acres may take five three bedroom/bath homes of 2000 square feet.  Woodside also has a limit on the size of a house to about 6000 SF; therefore, only three houses.  Cost of construction is about $500/ sf for a Home Depot house.  The cost of the land $5 million, if you can find a level one without slope to handle a large septic system, and if the town laws allow the building of more than total 6000 sf of covered area.  The rough total cost is $10.25 million, or $2.05 million per unit.  Is that affordability?

Now we get to Affordability, a score of 100 equals income to needed to qualify.  The Least affordable homes in our area are 1. San Jose, Sunnyvale, Santa Clara with a rating of 38.5 with a medium income of $159K and Income of $414K to qualify for a home.  2. San Francisco, Oakland, Hayward with a rating of 44.3 and median income of $141K and qualifying income of $319K.  

It comes to affordability not on supply to create affordable homes!

Now when it comes to affordability, let's look at those areas that Californians have migrated to.  A score of 100 equals income to needed to qualify: Boise ID @ 114.3, Boulder CO @ 101.3, Charlotte NC @ 153.1, Dallas @ 167.4, Austin @ 137, Houston the new home of HP @ 169.9, Memphis @ 175, Phoenix @ 139, Portland @ 117, Tucson @ 142 all show why Californians have moved out.  In fact; over the past 2 years 700,000 have moved out of California.  

Next to consider is "market vulnerability".  Sorry to the doomsday folks, there is no recession that will collapse our local economy.  Buyers and sellers are in a stand off. Buyers have cash and can pay all cash.  Sellers can hold until economics make them adjust their home price.  That leaves unfordable housing to exodus to areas in California that is affordable or a move out of the State.  Many of my low income buyers are looking at new housing projects of east bay and central valley

The recent 7 days is a clear example of that to me.  Each week this year there have been increasingly less new listings. Sales are eating up inventory.  This will happen until demand out distances supply and price will move up not down with interest rates increasing.  Again this past week I have seen homes that have hung on the market 20-30 days plus and BOOM 15 offers!  Boom; multiple over bids after a price cut or several price cuts. Fidelity Title weekly reports keep all our area in a sellers market based upon homes for sale, inventory and days on the market.

One last comment on interest rates and inflation. I have stated in past newsletters that the FED is looking at Asset inflation more that real inflation.  While many of the media reports focus on prices of eggs, gas, and consumer items, the real issue is asset value.  They are like politician's selling their services not reality.  Nothing to me means more than AFFORDABILTY in housing.  

My additional comment is on the Stock Market. Interest rates increases are a death knell for growth stocks!  Growth stocks pay no dividends.  Go back to the Schwab money market account.  Do you want the volatility on FAANG or a steady 4% return that could go higher?  The FED will continue to raise interest rates in the near future, in my opinion.  I don't think higher mortgage rates will affect buyers, except the potential affordable stressed buyers will move out of state to affordable areas.

There are opportunities here in our area.  Investors continue to look for a home to fix and flip.  Buyers do not want to fix a home and will pay for an up to date interior with new paint and landscaping.  The difference between "what was and what is",  is a handsome profit for the investor.  

As long as those factors remain the same we have a healthy real estate market!

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