Following the Job Market
Analysts at Freddie Mac believe there is a link between the building of housing wealth and the job market. The conclusion is that in states where the economy is booming single-family housing is becoming unaffordable at a faster rate.
For example, job creation on the West Coast is at its highest while the Midwest is the lowest. From February 2005 - 2006, the West Coast added 610,000 jobs while the Midwest added only 224,000.
Furthermore, the National Association of Realtors reported that the median income household could purchase 164% of the median-priced house in the Midwest. On the West Coast, your income can only afford 81% of the median priced house. The numbers tell the story. Housing is obviously twice as affordable in the Midwest than it is on the West Coast.
Analysts note a greater area for concern. The disparities found in some regions are creating a larger problem in terms of affordability. In a desire to own a home in some of these higher priced regions, many borrowers are turning to riskier adjustable-rate mortgages. Mortgages that were originally designed for sophisticated home buyers of substantial means but are now marketed to those seeking to stretch as far as possible.
While the real estate market appears to be cooling and returning to single digit growth, particularly in areas such as the West Coast, the question being raised is whether affordability will also increase.