It is if you look at the report that the National Association of Home Builders, or NAHB, and Wells Fargo just published. The study took into account the median family income and the median sales price of a sample metro area during the first quarter of 2007 and then arrived at an affordability index. According to its findings, Las Vegas ranks 186 with only 18.9% of households able to purchase a median-priced home. That is a worrisome number.
I don't know what the index was before the residential real estate boom started early this decade, but it must've been much higher than the above figure. Those days you could buy a nice 3-bedroom house for $140,000, while today the same home will cost double that. The other component in the index is the median income and all I can say is that it certainly hasn't doubled here in the last 6-7 years. Incomes have improved some, but nowhere near the home value pace. In short, there is the reason to the low number, the 18.9%.
In addition, this affordability weakness is largely responsible for the current sluggish real estate market here in Southern Nevada. Household incomes simply aren't high enough to support a normal buy and sell environment. So, what is the solution? Incomes would have to rise quite a bit to close the gap, but for it to have a meaningful impact would take years. Many years. The other solution is lower prices. And that is presently taking place, although slowly. This route will help the market faster, at a cost. The fat equities that some homeowners have accumulated are going to shrink.
The report tells us that nationally affordability has improved to 44% in the first quarter, from 41.6% in the last quarter of 2006. That hike is clearly the result of the current housing slump, one of its benefits. The most affordable major market area was Indianapolis with an index of 89% and the least affordable city was Los Angeles with an index of 3.0%, and the ranking of 219. I mean, who is buying homes in the LA area?
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