There's a good reason that we are currently renting instead of owning. Houses in my community are now going at the rate of $350,000 for a one story ranch with a bare minumum of backyard. A run down cape just sold for 299k. The ranch down the block with the nice circular driveway but no basement or yard was going for 400k and they took it off the market after six weeks because they didn't have a bite.

There are seven or eight houses for sale on every block. No one is buying because no one can afford those prices plus the ridiculous taxes here. There is a glut of sellers and no takers.

I am not about to back to living paycheck to paycheck just for the "privilge" of owning a house when it would leave us one appliance breakdown or medical emergency away from poverty.

Maybe Joe and Mary shouldn't borrow against the value of their house, since second mortgages are traditionally an ice-glazed road to bankruptcy, and the 125%-of-value rule is a joke designed to push them there. Maybe they should buy something in a price range that will still allow them to save on the side, or make payments to their orthodontist. Also, Joe Jr. should stay in public school.

I have to agree with Nance on this. So many of our friends have been living beyond their means these past 10 or more years. Some keep pilling on the debt with equity loans, credit cards, and consoloidation loans. One friend told me they have nothing for retirement except selling the house, but he says he'll change that after the kid gets out of school (his child is 12)

Where as my wife and I have stayed pretty much in our budget. We can save some every month, have no credit card debt, and can afford to take a vacation every year. Without borrowing for it. I do sometimes wonder if I am being stodgie and not moving into a larger home. But I like having money to take the family out to dinner, set money in the savings so we can go on a vacation, buy the boys (12, 11, 9) basketball/baseball/football shoes when they need them

Scott, those are the same reasons we have yet to buy our own home.

I am finally at a point where I can readily give my kids the things they need such as sports equipment, school supplies, etc. and some of the things they want (vacations, video games, etc.). We live in an apartment, and the trade off in buying a house would be the sense of comfort we have now.

I will not leave my area; my entire family is here. Instead, I will suffer the slings and arrows of "just being a renter" while we wait for the market to be more reasonable.

I'd rather live where I am now and be able to give my kids the things they need without borrowing than buy an overpriced house and go back to breaking the piggy bank when my son needs new cleats.

You're right on target, Stephen. People who argue that housing prices are just a function of supply and demand in tight markets like Portland, Seattle, SF, and New York, forget that for this to stay true, the frictional churn in the market has to be composed of people with the same, or higher, incomes as the ones who already live there. (Adjusted for lower interest rates, that is.) Incomes ain't rising. And even more than that -- demand for houses is highly correlated with the economy. While it is a lagging indicator, due to the structural problems of overleveraged housing (people who won't sell because they've borrowed more than the value of the house, and would be left with nothing), housing demand eventually lags sharply, while apartment demand goes up. So I'd say that, looking at the demographic profile of the US, with the boomer demand for large houses coming off its peak, and the economic picture, housing prices are due for a crash. IMHO, the only thing that's been propping them up is low interest rates and the conviction we well remember from the boom that real estate is a sure bet.

Now, we all know it's idiotic to be borrowing that much. I know many people who make good livings who have nonetheless managed to get themselves in credit card trouble, clear it with a second mortgage -- and then get themselves in credit card trouble again.

But it's pointless to rant about them. The really worrying thing is what's going to happen to us when they all start defaulting, which I predict in 6-18 months. Remember, almost everyone until very recently made their income calculations based on steady raises. (Actually, aside from me, I think everyone still may be doing that -- and STOP IT RIGHT NOW). Well, deflation doesn't just lower your mortgage payments; it means paychecks are going to stagnate.

There are ways to become a homeowner without taking on a humongous amount of debt. Most communities have first time homeowner programs. I was able to buy a condo in a development that was specifically earmarked for first time homebuyers. There is a ceiling on what the units can be bought and sold for that is indexed to the market. Plus, as a first time homebuyer I qualified for a mortgage tax credit certificate that is 10% of my annual interest cost.

I think the mortage and property tax exemptions are well worth going into debt for. My mortgage is much more than my rent payment was, but I have a lot more take-home pay because my taxes are so much lower than when I rented.

Stephen: That sounds like a liberal talking.

One reason why home ownership rates shot up is because as the economy improved, minorities found themselves the money to buy houses. But minority ownership rates still have a long way to go before they match rates for whites.

At http://www.liscnet.org/resources/2002/07/initiatives_817.shtml

I found this statement:

It is interesting to note that although minorities comprise one-fifth of all home owners, minorities contributed to two-fifths of the net gain between 1994 and 2000. The net growth in home ownership rates increased 25% for black owners, 39% for Hispanic owners and only 9% for white owners. Yet despite these positive trends, the wide discrepancy between minority and white home ownership rates remains, with black home ownership rate at 46.3%; the Hispanic rate at 46.3%; the Asian/other at 53.9%; and the white rate at 73.8% in 2000.

As for people going into debt unwisely, I've been reading stories about the imminent collapse of consumer credit since the 1980s, and it hasn't seemed to happen yet. That doesn't mean that it won't, but it would have to take some extraordinary combination of circumstances for it to happen. The free-market economy, in which banks would rather have consumers continue to make payments rather than escape through bankruptcy, tends to offer a lot of ways to self-correct the situation.

Nowhere in the US can a minimum-wage worker afford a two-bedroom home for their family... and in 75% of the country, even two full-time minimum-wage earners can't pay for family housing. It seems that either basic home prices need to come back down to a realistic and affordable level or people need to be paid a living wage, before home ownership will rise much more beyond current levels.

Let's not forget the market-distorting effects of over-tight government regulation of housing, especially in inner-city areas. One of the principal reasons for a housing price boom has been the short-circuiting of supply and demand caused by rent and zoning controls. Rent controls tend to diminish the supply of rental accommodatin, while zoning controls tend to concentrate populations in particular areas and thereby diminishes the housing stock overall. Both contribute to price rises.

I don't know the figures for the US, but the collapse of the credit boom in the UK in the early 90's on its exit from the ERM caused tremendous hardship for many people as they slipped into 'negative equity'. One of the effects was to get the Labour Party elected. The increase in worker mobility is also bound to have an effect. Have a look at this report from a (leftist) UK thinktank on rates of home ownership growth. I wonder how closely this applies to the US.

Me, I'd like to know where the USAToday people found a home in California that someone could afford on $39K/yr. :)

John:

You said:
"Nowhere in the US can a minimum-wage worker afford a two-bedroom home for their family... and in 75% of the country, even two full-time minimum-wage earners can't pay for family housing. It seems that either basic home prices need to come back down to a realistic and affordable level or people need to be paid a living wage, before home ownership will rise much more beyond current levels."

My question is, was there ever a time when a minimum-wage earner could afford to buy a house? And it's the market that sets home valuation. Do you think the government ought to step in and set prices? You're asking for five kinds of trouble with that kind of solution.