Housing affordability in Charleston
Brian Brady is a gifted writer, mortgage broker and more. I learn a lot when I read what he has to say. One of the biggest issues in housing today is affordability, or more specifically a lack of it. Whether it is the Charleston South Carolina real estate market or any other area of the country, the housing boom of the past years had many people stretching their budgets to buy what was available. Some borrowers stretched a little too far and got in trouble.
One of the good things about the current correction is that with lots of inventory, motivated sellers want to sell and distressed builders are desperately looking to reduce inventory and lots of good deals can be made. Even if housing prices were to decline somewhat in the Charleston area, buying below current market value should give you some peace of mind with your purchase in most cases.
How much should you spend? When you go to a bank for a prequalification letter or a preapproval letter, they'll provide you with a good idea of what you can afford when your income and current debt are analyzed.
I think a good rule of thumb is that the purchase price should be no more than 5 times your income and here is why.
I just noticed a great article Brian posted at Active Rain with his prognostication for 2008 housing market conditions. One point he made about affordability was especially interesting. He believes that housing prices have further to fall in his home base of San Diego and possibly other overpriced markets as well.
"Housing prices will drop...more. The aforementioned reasons for foreclosures rising will be the same pressures felt in the housing market in 2008. Prices will continue to drop until a level of affordability can be established. That means that the investors (real investors put 20% down) will step in when the deals cash flow. It also means that until the rent v. buy figure is at parity, the incentive to own will be tabled until the economics of homeownership make sense. Determine the median income for your metro area, multiply it by 5 and that's your new median price. In San Diego, the income is about $70,000 which predicts a median price of $350,000, far below the current $470,000. That suggests another 15-20% drop in prices here."
Please read the entire article.
I don't know the median income for the Charleston area off the top of my head but it's probably lower than our median home price ($203,766 for October) divided by 5. It's probably somewhat dangerous to say this but it may not matter in Charleston because we have so many people who really don't live here so their income is not counted here but their homes are included in the housing statistics. I'm not saying housing is affordable or not affordable in the Charleston area, simply that the numbers can be a little skewed unless you drill down a little deeper.
I said earlier that Brian is a very gifted writer. You can also find him writing at The BloodhoundBlog. Click here for his take on what is currently happening with Countrywide.