New Houses Out of Most Families' Reach
It's a surprise to builders: Nearly 6 in 10 can't afford
$175,000,and lending crisis makes it worse
September 6, 2007
BY GRETA GUEST
FREE PRESS BUSINESS WRITER
In real estate some say it's all about location, but in Michigan's rocky economy it's more about price.
A study by the Michigan Association of Home Builders found that 1.35 million Michigan households, or 35%, can afford only homes priced under $100,000, yet the average price was $139,155 in June.
"There is no question that affordable housing is becoming an endangered species in Michigan," said Lee Schwartz, executive vice president for government relations for the home builders.
Jill Rauser, 35, a single mother of two, knows the problem firsthand. Rauser, who handles human resources for a Troy company, had been looking for more than a year for a newer home priced at less than $160,000.
Finally in August, she moved into a new house with three bedrooms in Madison Heights priced at $159,900. She had been renting a home in Fraser.
Her other option was to buy the house she was renting, but it was older and needed repairs.
"Nothing compares to this," Rauser said. "Either I am getting a new home for not much more money or I'm buying the old house and using all my savings to fix it up."
Schwartz said the association had its national group's housing policy department compile the study last fall to find out whether Michigan has enough affordable housing. The survey uses income data from the 2005 census.
"We were surprised by the large number of people that are down in that bottom rung of not being able to afford a home of over $100,000. It was almost double what we thought it would be," Schwartz said.
When adding the second group of 907,000 state households that can afford a home priced between $100,000 and $175,000, "you are talking close to 2.3 million Michigan households that are in a housing crunch," Schwartz said. That amounts to almost 60% of the state's households.
One builder's discovery
Tony Gallo, president of Gallo Cos. in Warren, built the house Rauser purchased. He had been trying to sell the new homes in the Harvard Village subdivision starting at $199,000 last year and sold just one. He did some research and found out that of the 122 homes sold in 2006 in the Lamphere Schools district, only one sold for more than $200,000.
"I ... figured out my prices were out of whack. At $199,000, I wasn't going to sell any houses," Gallo said.
He brought the prices down in April to $159,900 by downscaling the design and has sold seven homes since then. They are 1,600 square feet and feature three or four bedrooms. Homeowners also get maple cabinets in the kitchen, choice of first- or second-floor laundry rooms and attached garages.
Gallo has a total of 41 lots off Dequindre south of 12 Mile Road nestled in an established neighborhood, but is building the homes only once they are sold. Construction takes 90 days, he said.
Schwartz said the pricing problem is statewide. And many of the affordable homes are older homes.
"Housing prices have gotten to the point that they have moved new homes beyond the ability of many people to afford, and that is simply not a good thing," Schwartz said.
The reasons are many, including ordinances and regulations such as construction permit fees, impact and tap fees, which can add 40% to the price of a new home, he said.
Gallo has two other potential deals waiting for loan approval. And now that mortgage standards have tightened after a wave of foreclosures, more potential buyers are being turned away.
"The practical problem is getting people approved, because the secondary mortgage market is gone," Gallo said.
It's not all bad news
The Detroit, Livonia and Dearborn markets together ranked as the nation's second-most affordable major housing market from April to June, just behind Indianapolis, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.
In Detroit, 86% of new and existing homes that sold during the second quarter this year were affordable to families earning the area's median household income of $53,800. The median home sales price was $92,000, the index said.
Nationally, affordability remained well below the levels recorded before the price surge during the 2004-05 housing boom, said David Seiders, chief economist for the National Association of Home Builders.
"The data shows that affordability generally remains a serious issue even though national average house prices are down from their 2005 highs," he said. "The abrupt tightening of lending standards in the subprime sector -- a trend that is now bleeding into other sectors of the mortgage market -- is having serious impacts on the ability of many families to purchase homes."
The $139,155 average price of houses sold in Michigan in June was down 7% from the average price of $149,828 in June 2006, according to the Michigan Association of Realtors. The number of homes sold fell 6% to 55,417 in June.
Prices are expected to fall further this year and next, with more foreclosures predicted.
Nancy Reeser-Pierce, a Realtor with Real Estate One in Royal Oak, said that sellers are being more realistic about prices to move their homes more quickly. She is finding that the homes priced at less than $175,000 are harder to sell.
"The buyers in that range are afraid to buy, and it's harder for them to get credit," she said.
It's a surprise to builders: Nearly 6 in 10 can't afford
$175,000,and lending crisis makes it worse
September 6, 2007
BY GRETA GUEST
FREE PRESS BUSINESS WRITER
In real estate some say it's all about location, but in Michigan's rocky economy it's more about price.
A study by the Michigan Association of Home Builders found that 1.35 million Michigan households, or 35%, can afford only homes priced under $100,000, yet the average price was $139,155 in June.
"There is no question that affordable housing is becoming an endangered species in Michigan," said Lee Schwartz, executive vice president for government relations for the home builders.
Jill Rauser, 35, a single mother of two, knows the problem firsthand. Rauser, who handles human resources for a Troy company, had been looking for more than a year for a newer home priced at less than $160,000.
Finally in August, she moved into a new house with three bedrooms in Madison Heights priced at $159,900. She had been renting a home in Fraser.
Her other option was to buy the house she was renting, but it was older and needed repairs.
"Nothing compares to this," Rauser said. "Either I am getting a new home for not much more money or I'm buying the old house and using all my savings to fix it up."
Schwartz said the association had its national group's housing policy department compile the study last fall to find out whether Michigan has enough affordable housing. The survey uses income data from the 2005 census.
"We were surprised by the large number of people that are down in that bottom rung of not being able to afford a home of over $100,000. It was almost double what we thought it would be," Schwartz said.
When adding the second group of 907,000 state households that can afford a home priced between $100,000 and $175,000, "you are talking close to 2.3 million Michigan households that are in a housing crunch," Schwartz said. That amounts to almost 60% of the state's households.
One builder's discovery
Tony Gallo, president of Gallo Cos. in Warren, built the house Rauser purchased. He had been trying to sell the new homes in the Harvard Village subdivision starting at $199,000 last year and sold just one. He did some research and found out that of the 122 homes sold in 2006 in the Lamphere Schools district, only one sold for more than $200,000.
"I ... figured out my prices were out of whack. At $199,000, I wasn't going to sell any houses," Gallo said.
He brought the prices down in April to $159,900 by downscaling the design and has sold seven homes since then. They are 1,600 square feet and feature three or four bedrooms. Homeowners also get maple cabinets in the kitchen, choice of first- or second-floor laundry rooms and attached garages.
Gallo has a total of 41 lots off Dequindre south of 12 Mile Road nestled in an established neighborhood, but is building the homes only once they are sold. Construction takes 90 days, he said.
Schwartz said the pricing problem is statewide. And many of the affordable homes are older homes.
"Housing prices have gotten to the point that they have moved new homes beyond the ability of many people to afford, and that is simply not a good thing," Schwartz said.
The reasons are many, including ordinances and regulations such as construction permit fees, impact and tap fees, which can add 40% to the price of a new home, he said.
Gallo has two other potential deals waiting for loan approval. And now that mortgage standards have tightened after a wave of foreclosures, more potential buyers are being turned away.
"The practical problem is getting people approved, because the secondary mortgage market is gone," Gallo said.
It's not all bad news
The Detroit, Livonia and Dearborn markets together ranked as the nation's second-most affordable major housing market from April to June, just behind Indianapolis, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index.
In Detroit, 86% of new and existing homes that sold during the second quarter this year were affordable to families earning the area's median household income of $53,800. The median home sales price was $92,000, the index said.
Nationally, affordability remained well below the levels recorded before the price surge during the 2004-05 housing boom, said David Seiders, chief economist for the National Association of Home Builders.
"The data shows that affordability generally remains a serious issue even though national average house prices are down from their 2005 highs," he said. "The abrupt tightening of lending standards in the subprime sector -- a trend that is now bleeding into other sectors of the mortgage market -- is having serious impacts on the ability of many families to purchase homes."
The $139,155 average price of houses sold in Michigan in June was down 7% from the average price of $149,828 in June 2006, according to the Michigan Association of Realtors. The number of homes sold fell 6% to 55,417 in June.
Prices are expected to fall further this year and next, with more foreclosures predicted.
Nancy Reeser-Pierce, a Realtor with Real Estate One in Royal Oak, said that sellers are being more realistic about prices to move their homes more quickly. She is finding that the homes priced at less than $175,000 are harder to sell.
"The buyers in that range are afraid to buy, and it's harder for them to get credit," she said.
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