Bank Foreclosed Home Makes Homeownership Affordable

by Simon Lindsay on General

A recent market report showed that homeownership continues to become affordable, especially in areas with a high number of bank foreclosed home. The quarterly report released by Wells Fargo and National Association of Home Builders showed that residential properties are more affordable than they were 20 years ago.

The report said that a family with an annual median income of about $64,000 could afford to purchase 72.3 percent of all houses sold in the country in the second quarter of 2009. In the first quarter of this year, the same family could afford to purchase 72.5 percent of all houses sold in the country. In the second quarter of last year, home affordability was 55 percent.

Industry analysts said that the demand for houses is increasing stimulated by the rise in affordability and the federal tax credit of $8,000 given to first-time homebuyers. Analysts explained that a home can be called affordable if a family who earns a median income could allot equal or not more than 28 percent of their earnings toward the housing costs.

The report noted that the dramatic improvement in home affordability this year was due to the declining prices and low interest rates. According to market data, the average home price in the country today declined by over 32 percent compared with the peak market price in 2006.

And for three months, interest rates for 30-year fixed-rate loans were below 5 percent, which was a historic low.

The improved home affordability may benefit buyers but it becomes a bane to sellers. Data showed that over 30 percent of all houses sold in the second quarter went below the price originally paid for by sellers.

In a typical real estate market, the value of the property increases over the years. But homeowners who purchased their properties and sold them within the last five years lost more money on the deals.

Compounding the problem of most home sellers is the foreclosure crisis. Many home sellers were forced to sell their properties at a lost because they know that they could not keep up with their mortgage payments and selling their houses was one of their options to avoid foreclosure.

But the abundance of foreclosure homes on the market pushed down prices of properties, leaving sellers no choice but to lower further their sale price in order to compete with bargain-priced distressed properties.