Three years ago, I bought a house for what seemed like an awful lot of money. It wasn't, at least statistically; among houses in this ZIP code, you'll find mine about in the middle, pricewise, and Oklahoma housing prices are at the low end of the scale nationally. If your next question is "What's the high end?", consider this: I ran a search for "1060 square feet 3 bedrooms" and found this place in San Jose, currently offered for $599,000, or about 6 times what my place is worth. And my lot is more than twice as big. (That lawn, however, looks better than mine at the moment.)
"Yeah, but they make more money in San Jose." True enough. But do they make six times as much? Probably not. And since I'm not exactly rolling in it, I'd have to assume that it's a lot harder to buy a house there than it is here.
Every year, the National Low Income Housing Coalition puts together a report called Out of Reach, and this is the premise:
Despite the emphasis on homeownership and the marginalization of renters, renter households still make up fully one-third of the households in the United States nearly 36 million households. Out of Reach is a side-by-side comparison of wages and rents in every county, Metropolitan Area (MSAs/HMFAs), combined nonmetropolitan area and state in the United States. For each jurisdiction, the report calculates the amount of money a household must earn in order to afford a rental unit at a range of sizes (0, 1, 2, 3, and 4 bedrooms) at the area's Fair Market Rent (FMR), based on the generally accepted affordability standard of paying no more than 30% of income for housing costs. From these calculations the hourly wage a worker must earn to afford the FMR for a two-bedroom home is derived. This figure is the Housing Wage.
"HMFA" denotes a Metropolitan Fair Market Rent Area as defined by the Department of Housing and Urban Development. Here's what the Coalition has to say about things here in the Big Breezy:
In Oklahoma City, OK HMFA, the Fair Market Rent (FMR) for a two-bedroom apartment is $587. In order to afford this level of rent and utilities, without paying more than 30% of income on housing, a household must earn $1,957 monthly or $23,480 annually. Assuming a 40-hour work week, 52 weeks per year, this level of income translates into a Housing Wage of $11.29.
My house payment principal, interest, plus escrow is a few bucks more than this theoretical apartment would run; apparently this is how I was able to qualify for this humongous loan, since it comes to less than 30 percent of my income. (This being a fixed-rate loan, P&I will remain constant; the amount devoted to escrow has gone up about $16 in the past three years.)
So how are they faring in San Jose?
In San Jose-Sunnyvale-Santa Clara, CA HMFA, the Fair Market Rent (FMR) for a two-bedroom apartment is $1,284. In order to afford this level of rent and utilities, without paying more than 30% of income on housing, a household must earn $4,280 monthly or $51,360 annually. Assuming a 40-hour work week, 52 weeks per year, this level of income translates into a Housing Wage of $24.69.
Way out of my league. And that's for a rental; that house in San Jose at $599,000 would require payments upward of $3,000 a month, even with 20 percent down. Using the 30-percent rule, I'd have to be making more than $120,000 a year, which isn't about to be happening.
There are, I assume, rental properties in California that don't command this much rent. The last apartment I had in central Oklahoma was below the FMR for that year, but it was a hellhole, and you know how I feel about hellholes. I've suggested before that owning a small house was a better deal than renting an average flat, and I still believe that; this option, though, might be difficult, even impossible, to exercise in pricey places like San Jose.
But the real-estate bubble is over, right? Ask Taylor Dial, who heads the Housing Trust in Santa Clara County, and this is what he'll say: "You go find anyone out in the street who's living with two other families and ask them if it's any less expensive than it used to be."
If there's a lesson here, it's twofold:
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Copyright © 2006 by Charles G. Hill