Is Achieving Home Ownership in Danger?

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The effort to make home ownership attainable is a constant job! Did you know that approximately 28% of the cost of a home goes to regulations? Think about that before the first shovel of dirt is moved to get ready to pour the slab the cost of permits, wetland permits, development cost etc 28% of the total cost of your new home is already in the price tag!!

Home ownership is a crucial foundation for helping families find a path to a better quality of life. When they achieve home ownership families frequently improve their health, educational attainment, safety and personal wealth.

Benefits of Attaining Home Ownership:

  • There is a strong positive relationship between living in poor housing and a range of health problems, including respiratory conditions such as asthma, exposure to toxic substances, injuries and mental health. Homes of owners are generally in better condition than those of renters.
  • Findings reveal that increases in housing wealth were associated with better health outcomes for homeowners.
  • People who recently became homeowners reported higher life satisfaction, higher self-esteem, and higher perceived control over their lives.
  • Homeowners report higher self-esteem and happiness than renters. For example, homeowners are more likely to believe that they can do things as well as anyone else, and they report higher self-ratings on their physical health even after controlling for age and socioeconomic factors.
  • Renters who become homeowners not only experience a significant increase in housing satisfaction but also obtain a higher satisfaction even in the same home in which they resided as renters.
  • Social mobility variables, such as the family financial situation and housing tenure during childhood and adulthood, impacted one’s self-rated health.

The National Association of Home Builders estimates require a household income distribution along with some standard assumptions about the costs of shelter. These include a 10 percent down payment, an annual private mortgage insurance premium of 73 basis points, a property tax rate of $11 and an annual payment for homeowner’s insurance of $4, per $1,000 of property value. NAHB then applies the conventional underwriting standard that these costs should not exceed 28-30 percent of household income. The result is a housing affordability pyramid like the one shown below:

At the bottom of the pyramid are over 25 million households NATIONWIDE which lack the income to afford a $100,000 home. Within the bottom three tiers there is a total of 63 million – or more than half of roughly 120 households, who can’t afford a $250,000 home, giving credence to a the National Association of Home Builders findings last fall that 49 percent of home buyers are seeking homes below that price level. The National Association of Home Builders estimates that a $1,000 increase in the median price of new home will price 158,857 households out of the market. These are borrowers who could qualify for a mortgage to purchase the home before the price increase, but not afterward.

What About Tangipahoa Parish?

Typical Value Index for Single Family Homes for Last 15 Years

In Tangipahoa Parish, Home prices range from $95,000 to over $900,000 although the Median home value was $182,000 in 2019, according to housing data sources in December 2019 a typical home price in Tangipahoa Parish peaked at $149,300.

The cost of owning a home should not exceed 30% of the income of the person buying a home; therefore, the income to purchase say a $150,000 home would be at least $45,000 annually. As of 2018, the median household income for the parish was $46,297 so many in the parish are at the top of their price range for home ownership of a “typical home.”

Governmental regulations such as permits for construction, foundation,
electrical, plumbing, heating, power connection, gas connection, sewer connection on and on adds up to the bottom line of the cost of a home. There is even public opinion to add more expense to the cost of building a home in the form of “impact fees.” It has been proven that impact fees do not have a big enough impact to make a difference on infrastructure, but does add to the cost of buying a home. Remember, for every $1000 that is added to the cost of a home 1000’s of people fall out of the bracket to attain homeownership.

When someone is priced out of a market, their choices are to simply remain out of the market, to wait for the market to become more affordable, to improve their own financial situation to the point where they can afford to buy, or, if possible, to consider a different market. For example, someone who was priced out of their neighborhood’s real estate market could look at a different part of the city or even an entirely different city or state.

As Tangipahoa Parish continues to grow, let’s be careful how we regulate the housing industry to keep housing attainable in our region. Let’s give our leaders constructive advice and suggestions on keeping the cost of homeownership at a  level that is comparable to our income levels in the region that the home will be located.

Remember, Home ownership changes lives for the better and the Housing  Industry is a huge part of our economy. Many of our family and friends have jobs with a direct connection to the housing industry. You can read more  about the impact of housing in the blog below on The Tangipahoa Housing 2019 Review and Forecast for 2020 or the Housing Industry Impact report completed by the SLU Business Center.

Joseph Mier & Associates has served the Northshore Region for over 20 years and enjoys sharing information with the community on the real estate market.

If you have any questions, we would be happy to assist you with your real estate appraisal needs or real estate consulting. Please feel free to leave your comments below or contact our firm for assistance. 

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