House values way ahead of wages

It seems like so many people say they ...

"Couldn't afford the house they live in if they had to buy it now."

The only reason why they can still afford to live there is the fact that they bought it years ago when prices were a lot lower. Their wages have not kept up with spiraling house values over the past years.

This means that first time home buyers tend to be priced out of the market, until houses come down in value, or wages rise dramatically.

No wonder houses are starting to come down in value.

That could be a good thing if it makes houses more affordable again.

Another side of the "not being able to afford the house you live in" coin is this.

"The house is worth less than what you owe on the mortgage."

That's most likely if one bought recently, or borrowed against the house just before the market starts to drop.

Basically houses were just too expensive compared to most other sectors of the economy.

Should the government try bailing this out?

If they think homeownership is that important, let them figure out how I could buy a house also. Buy a house without having to move too far from my job, or break my neck trying to work two jobs or stomping over folks on my way up the corporate ladder.

If my wages and savings remained the same, I could afford something in the range of $40,000 - maybe even $50,000. That's figuring about 1/3 of my income for house payments plus the savings I have for down payment.

I have a reasonably good job, by Bellingham standards. Not top dog, for sure, but not bad especially when one figures the benefits.

Problem is, there is nothing in this market, not even small condominiums; nothing even close to the $50,000 mark. Not that I know of at least.

Kulshan Community Land Trust has some experimental ideas that could be subject for another post.

Still, homeownership is not necessarily the "holy grail" for all of life. I have a very nice landlord and affordable rent within easy walking distance of work.

On a related note, someone just sent me a great column by Paul Krugman in the New York Times dated June 23 2008. Titled "Home Not-So-Sweet Home."

About how homeownership is not necessarily all its cracked up to be for everyone.

When home ownership is too much of a fad, that's one reason for the price being high. Everyone wants to do it.

Overpopulation, zoning rules and so forth push up prices as well. Also low interest rates have put a lot of cash into the market.

It's kind of like fake cash.

Most home buyers in this area seem to just get the money from the house they owned in the past, not from working.

Bottom line is, much of this home value inflation hasn't been because of wages.

Based on honest wages, can you afford the home you're now living in?

People at the top of the pay scale might be able to, but how about most of us? If not, how sustainable is this situation? Should the government try and keep the bubble going?

I think not.

There are other ways to cope, like living in a smaller space, taking in renters to help pay the bill, if you're a homeowner and zoning allows.

Solutions need to be sustainable.