Despite affordable prices, Roberts says consumers are too over-leveraged to buy a home and unable to qualify for a mortgage or save for a 20% down payment.
Roberts says a recent National Association of Realtors housing affordability index is overly optimistic in its suggestion that low prices could stimulate activity. He sees 2012 as another year of lagging sales, considering the average household debt for Americans over the age of 16 comes to $96,229 per person. In addition, the average income before taxes is roughly $54,110 and many Americans have a debt-to-income ratio of 177.8%, making it difficult for them to qualify for a home loan.
Roberts says the average median income for a family is $55,000, and the average median home sales price is $214,000. To afford such a home, the average American would have to put down 20%, or roughly $42,800. But, Roberts says that amount is nearly impossible to save, given the state of the economy and consumer debt levels.
“In today’s credit constrained environment due to the financial crisis which has left the major banks saddled with millions of homes that are delinquent or in foreclosure — there is little reason to lend money to borrowers who can’t meet very stringent qualification requirements,” Roberts wrote in a recent blog posting.
Still, his contrarian report arrives at a time when analysts are placing confidence in lower prices to spark a housing turnaround.
Capital Economics said Monday that if home prices and rents evolve as it expects, it will be better at some point to own a home as opposed to renting. But the report recognizes the economic realities impacting families who would like to own a home.
“This should go some way to reviving Americans’ appetite for homeownership,” Capital Economics said. “But tight credit conditions and widespread negative equity have left many households without the option of buying, meaning that the rental market will still outperform the owner-occupied market.”
Roberts with StreetTalk Advisors says it could take until 2013 to 2014 for home prices to stabilize and even that estimate could be pushed further down the line.
When asked how effectively Washington D.C. has dealt with the housing crisis. Roberts responded, saying, “Washington has failed by not letting the cycle resolve itself naturally. If someone loses their home – they rent.”
He added, “By trying to keep people in homes that they cannot afford we have created a lack of mobility in this country. Furthermore, by changing accounting rules to keep banks afloat they have artificially kept home prices higher than they should be. This keeps investors from coming in to buy up homes. The natural order of an economic cycle has been suspended…at least temporarily. We would have already been a long way through the deleveraging cycle, painful as it would have been at the time, if the cycle was allowed to unfold naturally. However, capital would have shifted within the economy and previous home owners would become renters, excess inventory would have been consumed and lower prices would be had.”
Source: Housing Wire