Remember all of those years we worried so much about our housing investments? From roughly 2009 – 2012 we saw short sales and foreclosures rise, home prices stall or fall, buyers disappear from the market and, in some places, desperation.
That all seems to be behind us now, as 2013 has proven to be a big recovery year for Hawaii real estate. Inventories have shrunk to such low levels that bidding wars are common in high-demand areas. Foreclosures are becoming increasingly rare and the short sale market is shrinking.
The best news is that prices are rising, in some areas by double digits. Of course this combination of good news makes some people a little nervous. Could we be on the verge of another housing ‘bubble?’ I think not, for a very good reason: affordability.
Affordability is a measure of how much income it takes to qualify for the median priced home, expressed as a percentage of the general population who has that income or more. As you might imagine, affordability was at an all time high at the beginning of 2012, just before the market began to turn. But since then, as prices and interest rates have risen, the affordability metric has declined.
While affordability numbers for Hawaii are illusive, we can probably glean a trend from another traditionally expensive real estate market: California. According to the California Association of REALTORS, in the third quarter of 2012, 59% of Californians could afford to purchase a median priced home in the State. By the first quarter of 2013 it was at 36%, and now, in the third quarter of 2013, the number is 32%. that’s a 27% decline in affordability in one year!
We have not seen affordability at these levels since the end of 2008, but this is a fluid metric, impacted by a number of factors: mortgage rates, home prices, and increasingly, mortgage underwriting criteria. This year lenders have been strict when it comes to underwriting. Nobody wants a repeat of the sub-prime lending melt-down. However, we’ve recently seen some relaxing of underwriting standards to the point that today, a person with a lower FICO score, less money down and more debt can qualify for a mortgage that he could not have gotten last year.
Affordability is just one of the factors impacting our recovery, and today it is working to keep our recovery from spiraling out of control. Affordability, prices, interest rates and inventory are all working to move us toward a market that is somewhat ‘normal.’
Don’t be dismayed by the low affordability numbers. At Help-U-Sell Honolulu Properties, we are expert at helping people find lending products that enable them to purchase their dream homes. We know where the mortgages are that fit your financial situation, and we’d be pleased to consult with you on this important issue.