Housing Affordability in Idaho

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Housing Affordability in Idaho

• Luke Erickson
• Garth Taylor
• Benjamin Eborn
• Sarah Howe
• Sue Traver
• Stephen Cooke

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Introduction

• Why is a housing affordability study needed?
• Impact of housing costs on Idaho communities
• Inability to attract entry level employees
• Long commutes for workers in Idahos newly
  discovered areas
• Entry level housing out of price range and not
  always available
• This study examined the affordability of starter
  homes.

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A Starter Home
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Study Objectives

• Construct a uniform index to compare and contrast
  affordability across time and communities
• Identify additional affordability factors
• Assess affordability of typical starter homes

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Housing Costs

• Census Bureau data
• Median home values
• Level at which half of the homes are higher and
  half are lower

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Table 1. Change in Median Housing Value from
1980-2000 by Region.
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Income

• Census Bureau data
• Median household income
• Level at which half of the households make more
  and half make less.

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Table 2. Change in Median Incomes from 1979-2000
Organized by Region
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Housing Index

• Looks at both housing price and income
• Index allows standardization of housing costs and
  ability to pay in one convenient number.

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What the index means

• An index of 1.0 means the median household income
  equals the income required by conventional
  lenders for the family to purchase the
  median-priced home.
• An index less than 1.0 means the median household
  income is insufficient to qualify for a
  medianpriced home loan.
• An index of greater than 1.0 means that median
  household income is more than enough to qualify
  for a median priced home loan.

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Idaho .91 U.S .95
Prepared by UI Indicators Team
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Idaho 1.32 U.S 1.18
Prepared by UI Indicators Team
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Idaho 1.28 U.S 1.25
Prepared by UI Indicators Team
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Interest rates make a difference

• ¼ rise from 6 to 6.25 on a 100,000 loan,
  equals nearly 6,000 in additional interest
  payments
• several months worth of wages for a
  middle-income household.
• 1980 12.66
• 1990 10.32
• 2000 7.88

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Beyond the index

• There are some additional factors that the
  current index does not take in to account.

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Nontraditional Lending

• Subprime/high-cost loans
• Adjustable rate mortgages
• Balloon/interest only mortgages
• 20 years ago virtually non-existent
• Volume of subprime mortgages in 2005 ½
  trillion
• 1 in 5 home-buying families in 2007
• 7 Xs more prone to delinquency and foreclosure

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Personal Debt

• No more than 36 of ones monthly income should
  be obligated to total debt, including a mortgage.
  
• 1983 consumer debt 4,490
• 2007 consumer debt 22,522
• Over 1/5 of low and moderate-income households
  were technically unable to afford a home simply
  because of household debt levels.

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Income Volatility

• 45 million working women in 1980
• 70 million in 2006
• 10 overall increase
• Dual earner households
• Affordable housing, can become unaffordable at
  any given moment
• Increased job volatility
• Lack of emergency savings
• Increased demands on time

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Starter Homes

• Approximately 1,500 square feet
• Three bedrooms
• 1.5 to 2 baths
• Small yard
• Less than 10 years old
• 1 to 2 car garage
• Not a fixer-upper

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Conclusions

• Standard for measuring affordability
• Affordability issues are geographically specific
• Patterns over time
• Interest rates play a big role

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Conclusions

• Non-index factors
• Relaxed lending standards
• Frequent refinancing of adjustable rate and
  balloon type mortgages
• Record-high debt levels
• Increased income volatility
• Perhaps a future study could attempt to include
  some of these factors.

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Housing affordability index calculation

• Index Monthly Household Income (HI) /
  Required Income (RI) to Qualify for a
  conventional Purchase Mortgage
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• Where RI Required Monthly Mortgage Payment/
  Qualifying Ratio (QR)