Looking at Affordability

By Alan Rosenthal

Living in California can be disconcerting when affordability drops to 14% as it did in the second quarter in 2006 in Ventura County, where I live – that’s with a 20% down payment of about $120,000 for a median priced house of $600,000. If you do not have the $120,000 to put down, affordability goes down even more. When you look at other parts of the country, like Texas, affordability goes up to 60%. That means 60% of the population can afford the median priced house in that area.

In many areas, affordability shrank so low that the areas had to find a balance by softening prices while the affordable areas are now having their day in the sun.

Let’s look at the two largest groups in US population: the Baby Boomers and the 18-30 year-olds. We, as investors, know that they are and will continue to move to Sun Belt states. Let’s talk about how affordability plays a role.

We’ll take an example from each – first Mary and Bob, a married couple at retirement age. They have some savings, an IRA and maybe a pension plan from work. They might live in a sunny state like California, or maybe back East in New York. They want to retire to a Sun Belt state but also to where there is a lower cost of living.

Let’s say that Mary and Bob have a house that is paid for, they have lived in it for the past 30 years and now have no mortgage. The house is worth $750,000. Remember they live in California or New York – not a lot of money for either of those two places. Mary and Bob sell their primary residence and walk away owing zero in taxes.

But how can they owe zero? Between the prices they paid for the house and the increased value from improvements, they have a $500,000 tax exemption. Because Mary and Bob lived in their home for at least 2 of the past 5 years, they own zero in taxes. Now they move to Nevada, Arizona or Texas where they buy a nicer, newer home for $125,000-$225,000. Now Mary and Bob have somewhere between $535,000 and $625,000 extra to help fund their retirement meaning a lot of money for trips, dinners out, cruises, trips, charities, grandchildren or on anything else they choose to spend it. For the Baby Boomers, affordability will play a big role in where they decide to move, especially if they want to help fund their retirement.

The other group we talked about is the 18-30 year-olds who have the biggest propensity to move. Research shows they are the largest group moving to Sun Belt states, where jobs and affordability are prevalent.

I had a very nice talk with a woman, right before I started writing this article. She told me they rent an apartment near me in Thousand Oaks, California and it has been tough for her and her family to make ends meet. So she and her husband, eight year-old and two younger children are moving to McKinney, Texas (near Fort Worth) in order to live more comfortably. Also, her brother and his family as well as her parents, who are retiring are also making the move.

We talked a lot today about how her family’s quality of life is going to improve after the move. They will be able to afford a newer, more beautiful home in the 2500-3000 square foot range much better than living in the three bedroom apartment. On top of that, they will not have constant stress and pressure about bills and her husband can get the same position with the same pay in McKinney.

As you can see affordability will certainly be a large factor for people choosing to move within the U.S. in the next two decades. I strongly believe that we will do very well owning investment property in the Sun Belt where affordability is at a higher percentage.

To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting FinancialHealthRealEstate.com/UpcomingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at FinancialHealthRealEstate.com/InvestmentTalks.html.


Home About Dr. Rosenthal Rave Reviews Upcoming Events Credit Repair Solutions Articles and Resources Products Ask Dr. Rosenthal Schedule an Appointment FAQs Blog Contact Us	Looking at Affordability By Alan Rosenthal Living in California can be disconcerting when affordability drops to 14% as it did in the second quarter in 2006 in Ventura County, where I live – that’s with a 20% down payment of about $120,000 for a median priced house of $600,000. If you do not have the $120,000 to put down, affordability goes down even more. When you look at other parts of the country, like Texas, affordability goes up to 60%. That means 60% of the population can afford the median priced house in that area. In many areas, affordability shrank so low that the areas had to find a balance by softening prices while the affordable areas are now having their day in the sun. Let’s look at the two largest groups in US population: the Baby Boomers and the 18-30 year-olds. We, as investors, know that they are and will continue to move to Sun Belt states. Let’s talk about how affordability plays a role. We’ll take an example from each – first Mary and Bob, a married couple at retirement age. They have some savings, an IRA and maybe a pension plan from work. They might live in a sunny state like California, or maybe back East in New York. They want to retire to a Sun Belt state but also to where there is a lower cost of living. Let’s say that Mary and Bob have a house that is paid for, they have lived in it for the past 30 years and now have no mortgage. The house is worth $750,000. Remember they live in California or New York – not a lot of money for either of those two places. Mary and Bob sell their primary residence and walk away owing zero in taxes. But how can they owe zero? Between the prices they paid for the house and the increased value from improvements, they have a $500,000 tax exemption. Because Mary and Bob lived in their home for at least 2 of the past 5 years, they own zero in taxes. Now they move to Nevada, Arizona or Texas where they buy a nicer, newer home for $125,000-$225,000. Now Mary and Bob have somewhere between $535,000 and $625,000 extra to help fund their retirement meaning a lot of money for trips, dinners out, cruises, trips, charities, grandchildren or on anything else they choose to spend it. For the Baby Boomers, affordability will play a big role in where they decide to move, especially if they want to help fund their retirement. The other group we talked about is the 18-30 year-olds who have the biggest propensity to move. Research shows they are the largest group moving to Sun Belt states, where jobs and affordability are prevalent. I had a very nice talk with a woman, right before I started writing this article. She told me they rent an apartment near me in Thousand Oaks, California and it has been tough for her and her family to make ends meet. So she and her husband, eight year-old and two younger children are moving to McKinney, Texas (near Fort Worth) in order to live more comfortably. Also, her brother and his family as well as her parents, who are retiring are also making the move. We talked a lot today about how her family’s quality of life is going to improve after the move. They will be able to afford a newer, more beautiful home in the 2500-3000 square foot range much better than living in the three bedroom apartment. On top of that, they will not have constant stress and pressure about bills and her husband can get the same position with the same pay in McKinney. As you can see affordability will certainly be a large factor for people choosing to move within the U.S. in the next two decades. I strongly believe that we will do very well owning investment property in the Sun Belt where affordability is at a higher percentage. To learn more about how Real Estate Investments can help secure your family's financial future, go to Dr. Alan Rosenthal's website at FinancialHealthRealEstate.com where you can find more great investment information. And while you're there, please sign up for your FREE Financial Health Real Estate Starter Package full of tips, newsletters and much more. Plus, you are cordially invited to attend one of his real estate investment workshops by visiting FinancialHealthRealEstate.com/UpcomingEvents.html. For additional information listen to one of Dr. Alan Rosenthal’s investment talks at FinancialHealthRealEstate.com/InvestmentTalks.html. ©2008 Financial Health Real Estate, Inc.