Article Building Industry

Housing Affordability: A Cost & Supply Problem

By Dennis Sweeney, Executive Vice President of HBA Rockford

The affordability of housing for a new single-family home, a duplex, or a condominium has little wiggle room. The cost of the house begins with the cost of the land, reducing lot sizes and increasing housing density has a limit. I refer to the builder in Georgia who commented about affordable housing: “They cost just as much to construct as any other house; the only thing that makes them affordable is the subsidies to build them or live in them”.

The current cost to build a new house with the amenities buyers expect in a new house in this market, according to local builders, is in the range of $270 per square foot plus the lot. So, the popular 1,800-square-foot ranch house is now at $486,000 plus a lot. There are not many first-time home buyers with the down payment and the income for a new $486,000 house. To complicate the supply issue, existing home owners are already living in comparable homes with lower (affordable) assessed market values (lower property taxes) at lower interest rates (3%–4%) and aren’t going to sell to move to a much more expensive house with higher taxes and a higher interest rate.

The 2021 national median value of new homes was $429,205, and the median value of homes purchased by a first-time buyer was $271,445. First-time home buyers do not buy new homes.

More than half of recent buyers put no more than a 20% down payment on the homes they purchased. Around 18% of all buyers purchased a home without a down payment in 2021; 50% had a down payment of 0 to 20%; and only 16% put more than 20% down. First-time buyers had relatively smaller down payments. Approximately 82% of first-time home buyers put no more than 20% down, including the 18% of home buyers with a zero-down payment.

Housing affordability will continue to be an issue until mortgage rates and building costs drop enough to entice existing home owners to sell and move up into a new home. That is how building new housing solves the affordability issue.

Article Building Industry

Nobody Asked Me But… Is Rockford Affordable?

By Dennis Sweeney, Executive Vice President of the HBA of Rockford

Affordability starts with the cost of land. This market starts with that positive advantage.

The median home list price in Rockford is $152K, and 86.5% of homes are priced below $250K. The condition of these “affordable” houses may be why they are so affordable. Buy existing for under $250K, but then spend $50K more to clean it up and make needed repairs. That’s the rest of the story. One reason houses here are more affordable is because property taxes are so high, which keeps home prices down. If buyers could transfer $100, even $50, from the property tax portion of their monthly payments to the principal and interest portion of their payments, they could purchase more houses, new and existing, and they would.

What puts the Rockford market in a better, positive light is that it is a city with good infrastructure and more robust business and manufacturing economic activity than Flint, MI, and Youngstown, OH. I have been to Youngstown, OH, a couple of times for college football games. Lincoln Ave. in Youngstown is similar to Harlem Blvd. and National Ave. in Rockford. The last time I was there 2006-2007, many of the houses on Lincoln Ave. had plywood covering their windows and doors. That is a depressing sight, leaves a lasting impression, and definitely pulls down the cost of what was once very nice housing. It hasn’t gotten that bad here yet.

There are many elements to our affordability. Such as the previously referred-to property taxes. Which makes people from out of state arrive thinking that they can buy a $250K house. But when they see the property tax bill, they have to change their home buying budget. That $250K deal comes with an asterisk and some important small print.

Illinois is losing its population. Fewer people means less demand for houses, which creates lower prices. The aging population is often in a mortgage-free home, and if they do sell, it’s to move to a friendlier retirement state for weather and taxes, or into a retirement facility.

How these market factors balance out impacts our affordability.


Inflation Continues to Cool in November Except for Housing

By Fan-Yu Kuo ,
Economist at National Association of Home Builders
December 13th, 2022

Consumer prices in November saw the smallest year-over-year gain since December 2021. While still elevated, inflation
experienced the second month below an 8% annual growth rate since February 2022. However, the shelter index continued to rise at an accelerated pace and more than offset decreases in energy indexes. Shelter inflation will be primarily tempered in the future by increased housing supply.

As inflation appears to have peaked and continues to slow, this may ease pressure on the Fed to maintain a more aggressive monetary policy. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.1% in November on a seasonally adjusted basis, following an increase of 0.4% in October. The price index for a broad set of energy sources fell by 1.6% in November as the gasoline index (-2.0%), the natural gas index (-3.5%), and the electricity index (-0.2%) all declined.

Excluding the volatile food and energy components, the “core” CPI increased by 0.2% in November, following an increase of 0.3% in October. This is the smallest monthly increase since August 2021. Meanwhile, the food index increased by 0.5% in November, with the food index at home also rising 0.5%.