WILL WE EVER BUY ANOTHER HOUSE?

We ended up houseless in California when we took too long looking for a new house after we sold ours in 2006. Prices climbed from crazy expensive into the stratosphere, far beyond what well paid techies could qualify for. Being old fashion, we still believe in the old algorithm, that we can only afford to buy a house that is three times our income.

Now we are living in Hilo, Hawaii far from the California bubble economy and we can’t help but look at housing prices here with our calculators. In our zip code, the average price of a house has gone up 291% since 1999. During that time, average wages in Hilo have gone up only 39%. Houses for sale in our immediate neighborhood are listed for $700,000 to $900,000. These are not McMansions, but fairly ordinary houses on smallish lots with 1200 to 2000 square feet of house. The yearly income needed to qualify for these houses (assuming a 6.5% fixed 30 year loan and 0 down) would be between $212,000 and $275,000.

The average employee pay in Hilo is $38,539 (based on the US Census County Business Patterns). A current job opening for a senior civil engineer with the county of Hawaii, one of the largest employers in Hilo, advertises a maximum yearly salary of $72,000. Most Hawaii county jobs in Hilo pay under $35,000. Senior professors at the UH in Hilo are paid under $150,000. Two senior PhD professors at UHH could jointly afford one of these houses. A two career couple with average Hilo incomes would qualify for a $231,000 house, less than a third of the price of the modest houses in our neighborhood.

The website zillow.com shows 17 houses listed in our zip code in some phase of foreclosure and 608 houses for sale. A house across the street from us that sold in 2004 for $161,000 has been for sale for 9 months, first at $899,000, and now at $599,000. If this house were priced in relation to wage increases in Hilo since 2004, it would be priced at $193,000, a price that a two career couple in Hilo could pay. In 1999, the average house sales price in our Hilo neighborhood, as defined by zillow.com, was $128,000. Based on average wage increases in Hilo, the current average housing prices should be $179,000, not $350,000! In Hilo, as in Silicon Valley, the math of the current housing prices just doesn’t make sense.

We created a “housing affordability graph” showing the average house sales price in Hilo between 1995 and 2006 compared that with the amount of house an average Hilo salary can buy and since it didn’t come close to being able to buy anything, we added the amount of house a two career couple with two average Hilo salaries could buy.

In 1999 the math worked for two career couples to buy a house in Hilo. By stretching financially or getting lower interest rates, a two career couple could still buy a house up until 2003. After 2003, house prices went completely out of reach financially and lost all relationship with the income earning potential of families in the community.

These unrealistic house prices are holding constant even as more houses are steadily added to the backlog, unemployment is rising (Hilo unemployment increased by 56.6% from May 2007 to May2008), tourism is falling off ( Hilo had 40% less tourists arrive by air in June 2008 than June 2007) and county tax revenues are down (26% so far this year) impacting income of the biggest employer in Hilo.

As boomers, our priorities have changed from local school ratings to local golf course ratings. A huge backyard no longer has the appeal it did 20 years ago and the energy and naiveté we had for our first fixer upper house is long gone. We are too old to count on increasing wages or inflation to cover for buying an over-priced house.

After two decades of home ownership, or more accurately mortgage-holding, we are starting to see the upside of renting. We like having the flexibility to move where ever we want without having the cost (6% to sell and 6% to buy: 12% just to change houses) and the financial risk of not being able to sell a house for what we paid. It gives us peace of mind to be able to downsize our monthly costs by moving to a cheaper rental or area. In this volatile economy we find it nice to sit back and watch what happens next. And as we wait for a time when housing prices make sense again, we are beginning to wonder if we will ever buy another house again.