Scottsdale and East Valley home prices continued to escalate in 2002, but record-low mortgage rates are keeping homes affordable in most communities.
The Arizona Real Estate Center at Arizona State University recently released its affordability index, which shows how affordable homes are based on home prices and income levels.
The Valley's affordability index remained at 124 for existing-homes in 2002. A household earning the median income could afford to purchase a median-priced home in an area if the index is at 100. Anything below 100 means the median income level isn't sufficient to meet the median home price.
"What's keeping housing affordability reasonable is because the monthly payment is low compared with income," said Jay Butler, director of the Arizona Real Estate Center. "The problem is always there, but it's masked sometimes."
Affordability varies among East Valley communities, but Scottsdale is the only city with an index below 100 or is the least affordable of those with available data. Gilbert was excluded from the study because it's a relatively new growth area and hasn't been tracked. Paradise Valley was also excluded.
Scottsdale's affordability can be misleading because the home building activity tends to be in a small, focused area in the northern part of the city while the median income applies to the whole city and may not be representative of all residents.
"Scottsdale is a very large city in both population and geographic size and has diverse income and housing and we tend to forget that," Butler said. "There's this disconnect between income and the price of housing."
Other East Valley communities offer homes priced within reason for their respective median incomes. Chandler was considered the most affordable East Valley community in the study with an affordability index of 140. "You get a self-fulfilling prophecy in Gilbert and Chandler," Butler said. "Only those who can afford to buy the homes, buy the homes. One of the hardest things to do is to change the direction an area is going."
Record-low mortgage rates enabled many East Valley residents to purchase homes in the last year.
"They are buying more homes and they are buying more home than they usually can afford because the interest rates are so low," said James Kearns, mortgage broker at Northsight Mortgage Group in Scottsdale. Chad and Olivia Perkins recently purchased their first home in Scottsdale with the help of low interest rates.
"The mortgage rate was the kicker," Chad Perkins said. "Before the rate was so high we couldn't have done it. My payments would have been outrageous."
Mortgage rates make buying and selling homes possible. "It used to be you couldn't afford to sell your home because you couldn't afford to buy one or buy your own," Butler said. "You may get into this situation in the future if interest rates go up."
The existing-home affordability index is at the same level it was 10 years ago even though the median existing-home prices increased $61,900. A $1,200 increase in median income over the last decade and a 2 percentage point decrease in mortgage rates has kept monthly payments reasonable. "Interest rates are holding down affordability," Butler said. "As interest rates go up, more and more people are taken out of homeownership."
The other variable that affects housing prices is a change in housing products, he said. "Affordability of housing is always an issue even beyond price," Butler said. "It comes down to, can a school teacher afford to buy a home in your area? If they can't there's some argument that there's a problem because the people who serve your community can't afford to live in your community."
"One of the responsibilities of a city is building a supply of housing for the people who live and work in it," Butler said.
The new-home affordability index has been improving over the last 10 years because more than 30 percent of the Valley's new construction is now in the West Valley, which has lower land prices and fewer development fees than the East Valley. The new-home affordability index increased to 113 in 2002 from 108 in 2001.
"Cities are progressively getting pinched for money to provide services, parks, streets," Butler said. "In the sense that they don't have these items, they're really not a community."
Nonprofit and government groups are looking at ways to make housing more affordable in the Valley and to keep it that way, but there doesn't seem to be a simple solution.
"You could build affordable housing, the problem is keeping it affordable," Butler said. "If you don't put in any constraints, those homes will go up in value and sooner or later you'll price out the people who they were intended for."
Fred Karnas, president of the Arizona Family Housing Fund, is in charge of one group working with builders, developers and nonprofit groups to create more affordable housing around the Valley. The organization was formed last year after a $20 million grant was given to address the issue. Karnas said the Valley's median income is nearly $50,000 and any household making 60 percent of that, or $36,000, will struggle to become a homeowner.
"We encourage developers, both private and nonprofit, to target this population because it tends to get left behind in a booming market like this one," he said. "There's affordable housing on the fringes, but for a family that's struggling to pay a monthly housing payment, adding huge transportation costs and child care costs all add up."
Karnas said many people think of affordable housing as projects and that doesn't have to be the case.
"For a community to be whole and livable it needs to respond to the needs of everyone that lives in that community," Karnas said. "It will gradually have an impact on the quality of life in the community and the ability of businesses to get workers to their companies. It really is a long-term liability issue for many communities."