Home Affordability Planning

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Home Affordability is Deceptive

The home affordability process of determining how much the cost will be to become a homeowner has changed little over many years. Most house shoppers want a ready-made house, with all their desired features, and ready to be moved into. They check all the resources for available homes, looking “to be lucky.” Seldom will “luck” be adequate to deliver their “dream” home.

Home-Search Technology Changing

Over the decades, especially the last couple, the resources for home searches have changed dramatically. We now have wanted ads, real estate magazines, talking sign tours, internet advertising, radio advertising, new developments galore, local building contractors, nationally recognized building contractors, and local and nationally recognized real estate agencies. All very willing to display and show their offerings available or to build to suit. The alternatives are viewed in a balancing act of comparing the cost of their desires on one side of the scale and with their financial resources on the other side. Average prices of homes vary regionally, but over the past 50-60 years housing cost have increased at an extraordinary rate. No matter where you live in the United States (US) now, in the 2014-time frame, the cost of owning a home is significantly higher when inflation adjusted.

Changing Tastes and Expectations

The cost is a much larger proportion of income, all largely fueled by two-income families and greater expectations of larger homes and a larger selection of “must-have” amenities. Larger driveways to accommodate more cars, larger garages, hot tubs, slate and marble counter tops, whirlpool baths, computer rooms, and you name it. Many American individuals and families have been priced out of the housing markets.

Home Affordability Purchase Trade-Offs

In order to become a homeowner, many are being forced to forego many of their wants or dreams and settle for homes that may not even meet their basic needs. Many of those who do achieve their dream homes do so by restricting or avoiding other desires and associated costs. They become locked into high mortgage payments and other associated housing costs. They forego family additions, vacations, leisure time, and maintenance of those dream acquisitions. Affordability is relative to many other aspects of a buyer’s life. A valid analysis must take into account all costs of ownership. Home ownership costs don’t end with the initial purchase price of the house. Unless cash is used, you have the mortgage costs (interest), and if you use cash, you have an opportunity loss cost on the return from the cash if it had been invested. Additionally, any time you are paying more to borrow money than what you would get if it was invested or in a savings instrument, you are losing money. One approach to the purchase is to look for a house in the price range they can afford. Another approach, the more practical and cost-effective approach, is to shop to determine the least cost to acquire a house with all the features you want. If the cost for the features you want is more than you can afford, scale down to a more affordable set of features. You can most likely add the additional features later. If the determined costs for the “ideal” home is less than you can afford, you’ll have “money to burn” for other desires.