Cracking the housing malaise

[NVMojo]

Toll Brothers <TOL.N> C.E.O. Robert Toll acknowledged in an interview with Reuters that the housing market is experiencing something "harder than a soft landing" but attributes it, not to macroeconomic factors, but to the impact of global issues such as Iraq, terrorism and the slow U.S. response to Hurricane Katrina on the psyche of the American consumer. The National Association of Realtors (NAR) Housing Affordability Index suggests a different explanation: that homes in some parts of the United States have become so expensive, even a decline in interest rates won't help much.

The Affordability Index is defined such that 100 means median family income is equal to the income it would take to qualify for a mortgage on a median-priced home, assuming a 20 percent down payment and that debt service would be 25 percent of income. An index value of 120 would mean median family income is 20 percent above the mortgage-qualifying level. A figure below 100 would mean there's an income shortfall; that a mortgage could only be issued if the lender stretches standards by accepting a smaller down payment and/or a heavier (than 25 percent) debt-service burden.

For July 2006, the preliminary index calculation came to 102.8, down from 112.2 in the 2006 first quarter, 114.6 in 2005, 123.9 in 2004 and 130.7 in 2003.

The overall decline in affordability, often discussed anecdotally and confirmed statistically by the Index, is significant in and of itself. More interesting, however, are the regional variations, as shown in Table A, along with key data-points used by NAR to compute the index.

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http://www.investor.reuters.com/Print/Article.aspx?docid=10084&target=%2f%2fcompanyoftheday&page=printarticle

[physioex]

1. Yea....

It is a bitch for the last several years there has been no such this as "affordable housing". I am a renter interested in a house but they are just too expensive. Also there has been no significant change in rent (for me and the overall market) yet housing prices keep going up....

[no_hypocrisy]

2. S-u-u-u-u-u-u-u-u-u-re . . . . .

Toll Bros. forgot to include rising interest rates, along with stagnant if not decreasing wages, inflation, rising property taxes, and a limited supply of investors (if not speculators) have left the housing industry with a dearth of customers. It's only profitable if you build a house that someone will buy. And Toll Bros. doesn't build modest cottages and Cape Cods. They build McMansions that are out of the price range of 95% of the population.