Looking Back: Redefining ‘Affordability’ for the 90’s

From the New York Times:

Redefining ‘Affordability’ for the 90’s
Published: January 20, 1991

And for many homeowners, the gains in affordability are at best a mixed blessing. Millions who bought in the late 80’s, believing their homes would prove to be lucrative investments, went further into debt for mortgage loans than has traditionally been considered prudent. Now, caught in a nationwide real estate slump and facing the propspect of selling for little more — or even less — than they paid, many are staying put, cutting back on other expenses and paying housing costs that are a heavy load.

For others, just staying put has become impossible. In New York, New Jersey and Connecticut, foreclosures on homeowners rose more than 30 percent in the first nine months of 1990. Evictions of renters are also on the rise; court records in New Jersey indicate they have risen by over 25 percent since 1986, to 163,994 last year.

“There is no question that people are feeling pinched and house poor,” said Robert Engelstad, vice president for mortgage standards at the Federal National Mortgage Association, or Fannie Mae, the nation’s largest buyer of real estate loans from thrifts, banks and mortgage companies.

“People in the 1980’s expected to hold on to a home for two or three years and sell at a profit, so they thought it was O.K. to fall behind on their MasterCard bills in the meantime,” said George Yankowich, a developer in Greenwich, Conn., one of the nation’s wealthiest communities.

For home buyers, the rule had traditionally dictated that no more than 28 percent of their income be devoted to mortgage payments, real estate taxes and home insurance premiums. The 28 percent limit was intended to prevent people from going too far into debt. It also stipulated that the totality of a home buyer’s debt obligations, including payments on the home loan, car loans, credit card purchases and other personal debts, should not claim more than 36 percent of income.

But for recent home buyers, particularly in the most expensive urban areas, the guidelines have been stretched widely. A 1990 survey of hundreds of home buyers in 18 large metropolitan areas, to be released later this month by the Chicago Title and Trust Company, found that most were paying more — sometimes much more — than 30 percent of their income for mortgage and real estate tax payments. Deepest in debt, the survey found, were 1990 buyers in the New York area, who are now paying an average of 40.6 percent of their incomes to mortgage lenders and tax collectors.

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29 Responses to Looking Back: Redefining ‘Affordability’ for the 90’s

  1. Anonymous says:

    Since the mid 1990’s this region has changed becoming nothing more than a haven for the wealthy, wall streeters & especially the ‘Paris Hilton’ types you see in Manhattan, Long Island & Bergen County.

    The idea is to turn the NYC region into a huge disneyfied shopping mall where apartments rent for $3,000 and up and apartments are priced in the millions.

    Work doesn’t seem to be part of the equation or actual ‘hard work’, but just coming here from wealth & money having unlimited means to spend wildly and looking down upon those with disdain & animosity those who make only in the five figures and don’t choose to spend their lives in the clubs & shopping malls every day.

  2. Mr. Oliver says:

    How does the old adage go?

    Those who do not study history are doomed to repeat it.

  3. Mr. Oliver says:

    Again with usual blah, blah, blah about the “Paris Hilton” types.

    Just be sure to mention the $300 jeans.

  4. Anonymous says:

    The first comment is true. Why can’t people just accept the fact that they won’t or can’t afford to buy or rent in this region??

    Keep waiting for prices to go down is like waiting for orange colored unicorns to come dropping out of the sky. It isn’t going to happen. And what does your money get you these days?? Not much unless you can committ $6,000 a month to a mortgage payment..

    For $300,000 (which is what someone making the supposed median income should be buying) you get a condo in a ghetto nabe with outrageous taxes & HOA fees in ‘as is’ condition, or some tiny fixer upper 2 hours away from Mahattan on a good day.

  5. Anonymous says:

    Mr Oliver,

    You are so right about history!!! Amen.

    The article stated that guidelines were stretched and homeowners were paying around 30% of their income to PIT, 40% in the NY area. What % are recent buyers, the last 3-4 years paying now??? What will this be when their IO’s adjust??? Believe me, they would be thrilled to be paying the % stated in this article. Does anybody have info from a lending institution that addresses this in today’s market??

    BC Bob

  6. RentinginNJ says:

    Since the mid 1990’s this region has changed becoming nothing more than a haven for the wealthy

    With maybe the exception of some “gold coast” neigborhoods of NJ, nothing has really changed. It’s the same old argument every time there is a housing bubble.

    I just read a Time magazine article from 1986 talking about how Boomers were just reaching their peak earning years, buying lots of houses. That didn’t last. The same old “it’s different this time” argument.

  7. RentinginNJ says:

    Well, just found out my flight to Raleigh was cancelled. Looks like I will have to reschedule my exploratory trip.

  8. Anonymous says:

    8/31/2006 10:31:18 PM

    “Keep waiting for prices to go down is like waiting for orange colored unicorns to come dropping out of the sky. It isn’t going to happen.”

    Yeah we know it’s different this time. You will be right if everybody discovers they just received a 60-100% pay raise. JDSU couldn’t go from 250 to single digits either. There is a better chance of an acting coach turning Paris Hilton into a good actress before sellers get their prices.

    You say it’s not going to happen. Unfortunately, it is happening all over the world, like a big pile of shit. Bob Toll knows its happening. The H-Builders sentiment is at a 15 year low. They know its happening. Would you buy a product from an industry that has so little confidence in their product at this time??? Go ask the sellers who are choking in debt, the realtors, the appraisers, the mortgage companies. They know its happening. Every stat pertaining to this market shows its happening. What stat can you provide to substantiate your argument/fallacy?

    BC Bob

  9. Anonymous says:

    {{{With maybe the exception of some “gold coast” neigborhoods of NJ, nothing has really changed. It’s the same old argument every time there is a housing bubble.}}}

    Yeah, Jersey City is sure Gold Coast. It is hilarious one bedroom ‘condos’ in railroad style tenement apartments starting in the high 300K’s. This isn’t even near the waterfront but ‘downtown’.

    And everyone looks the same. The same white suburban recent college grad who somehow is able to pay the $3,000 + monthly rents or PITI on a $70,000 a year entry level salary.

    These are the ones who were ‘priced out of Manhattan’ but too cool to live in Queens or on Long Island.

  10. seattle price drop says:

    Now THAt is a scary article. If people were stretched in the late 80’s/ early 90’s, how much more so now?

    As always Grim, you rock.

  11. seattle price drop says:

    Anon 10:31-

    Less than 2 hours from Manhattan brings you smack dab into Albany on the train.

    Trust me, you can get a freaking palace in the Albany area for 300K.

    And I hear they’re getting cheaper as we speak.

  12. 70k entry level salary??


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