Bulletin #10
August 31, 2005
There are few things so firmly set in the American psyche as
home ownership. More than the
fundamental need for shelter, owning a home is the dream that has attracted unlanded millions to our shores in search of, not just a
new life, but the possibility of home ownership. Our connection between property and
citizenship is deeply embedded in our history.
In fact, land ownership was once the critical minimum requirement for
voting privileges. This is nowhere more
evident than in the Jeffersonian model for the conquest of the frontier. Subsequent to the
As a young man just starting out, I moved my small family
into a modest apartment so that we could save to buy a home. We were able to live on my salary and in six
years we were able to make a down payment on a $32,000 home. We made improvements to that home and sold it
at a fair profit 15 years later to move into the booming real estate market in
This would have been foreign to Jefferson who envisioned family centered ownership of property that would be passed from generation to generation. For my wife and me, that model was no longer practical and we “traded-up” on the price escalator with a bit of skill and a lot of luck. It was a new model of home ownership and we were fortunate that it worked for us.
Today, even that model is failing and home ownership is undergoing
another change. We now live in a world
of limited access to home ownership where demand exceeds supply and prices
reach levels far beyond the ability to finance a home with average (or even
above average) family incomes. This is
most obvious in destination communities like
How can this be? Many
of our federal programs, like those in HUD or FHA concentrate on the first time
homebuyer by reducing the down payment.
This was the big initial hurtle for me in purchasing that first $32,000
home and an underlying objective of these programs was to help the homeowner
get on the price escalator. It worked
for several decades and continues to work in some regions where the gap between
home prices and salary is still sufficiently small for the homeowner to qualify
for and make payments on a mortgage.
Here in
The numbers speak for themselves. With a 10% down payment, 6% fixed interest,
and a 30 year mortgage, a young homeowner might still be able to find a $250,000
home in
Perhaps they could save for another year and increase their down payment to 20%. Of course, the market will not remain static and at a conservative 10% appreciation, the home would now cost $275,000 and a 20% down payment would be $55,000. Worse, their qualifying income at $61,744 would now have only come down by only a little less than $400! By increasing their down payment by 100%, they were only able to reduce their qualifying income by less than 1%.
Suppose they both worked very hard, drove a junker car, did without cable TV, shopped at outlet stores
or did without, and borrowed money from their parents in order to increase
their down payment to 30%. Even if they
did all this within the one year, the 30% down payment for the $275,000 home
would now amount to $82,500. Their
qualifying salary would now be $55,149, still more than twice the average
salary in
Run the numbers yourself or get someone knowledgeable to do it for you. There are an excellent set of on-line calculators at http://www.realestateabc.com/calculator/main.htm. Be sure to use the calculators that include all costs of housing (PITI), not just the mortgage payment.
We might wish it to be otherwise, but the message is clear. Even with assistance on down payment, the limiting factor is now the increasing gap between salaries and home prices. New homeowners can no longer get on the price escalator. Even if they could, their family income is not sufficient to benefit from using appreciation to trade up. The gap is now too large.
Which brings us back to our attitudes
toward home ownership. I’m
increasingly distressed by the attitude that affordable housing is charity for
those less fortunate. Worse, we
increasingly hear the view that people cannot afford homes because they spend
foolishly on nice cars, clothes and big televisions. Both views do a disservice to our hard
working young families who are faced with the reality that they will never own
a home in
The model of home ownership is once again changing and we are at the forefront of the search for solutions that work for our working families. If we do nothing, we will continue to lose our young families and our island culture will be forever changed. Please take the time to be informed. Visit our websites at http://SanJuanHousingBank.org/ and http://OrcasResearch.org/.
Talk to your friends and neighbors about this. Volunteer to help. Write a letter to the editor. Together, we can take action to preserve the island culture that we love.
Paul Losleben
As always, our most recent publications are posted at our website http://orcasresearch.org/ and now also at http://SanJuanHousingBank.org/. You can contact us at any time at Losleben@rockisland.com.
Tax deductable donations to help support the Housing Project and to help pay for educational materials and supplies are gratefully accepted through Navigating Our Future, Housing Project, PO Box 298, Deer Harbor, WA 98243. This is a totally volunteer effort, so your help is appreciated.