Real Estate: Less Money, Fewer Sales
The Census Bureau is reporting that incomes nationwide fell between 2007 and 2008 under the Bush Administration.
___ Real median household income in the United States fell 3.6 percent between 2007 and 2008, from $52,163 to $50,303. This breaks a string of three years of annual income increases and coincides with the recession that started in December 2007.
___ The nation’s official poverty rate in 2008 was 13.2 percent, up from 12.5 percent in 2007. There were 39.8 million people in poverty in 2008, up from 37.3 million in 2007.
___ The number of people without health insurance coverage rose from 45.7 million in 2007 to 46.3 million in 2008, while the percentage remained unchanged at 15.4 percent.
In essence these numbers mean that it will be very difficult to restore the housing market until incomes rise to former levels. Why? Because we typically qualify buyers for mortgage financing on the basis of their income with front and back ratios that compare housing costs to gross monthly income (the front ratio) and a second measure that compares housing costs and other monthly expenses against gross monthly income (the back ratio).
We might say, for example, that Smith can use up to 28 percent of his gross monthly income for housing costs and up to 36 percent of his gross monthly for housing costs, car payments, student loans, etc. His qualifying ratios would be 28/36.
If his income goes from $52,000 to $50,000 and the qualifying ratios remain the same then the result will be fewer dollars each month in gross income and thus less money to pay for housing and other costs. The result is an ability to only qualify for a smaller loan.
Income. It really counts.
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