When Is a Steal Not a Deal?

The sickly real estate market and tremendously low mortgage rates have coupled to make houses particularly affordable, at least compared to previous housing prices and rates.  At least, that’s what the CNNMoney.com article “Home buying: Most affordable in decades” by Les Christie would have you believe.  The article is a surprisingly accurate echo of this press release from the National Association of Home Builders.*  I want to talk for a moment about a particularly illustrative sentence in the press release: “Among smaller housing markets, the most affordable was Kokomo, Ind., where 99.2 percent of homes sold during the fourth quarter of 2011 were affordable to families earning the median income of $59,100.”**

O.K., I just-so-happen to be from Indiana, so I know a little bit about Kokomo, and have visited many times.  Allow me to illustrate:

Map courtesy of Google Maps

I lived a lot of my life in the blue area. Kokomo is the red area. I visited frequently.

Hopefully I have some local cred here.  I would like to take a minute to point out that Kokomo was one of the most depressed municipalities in Indiana just a year or two ago.  Unemployment was over 17% in 2009, and is currently 9.6%.   With the closing and reopening of Delphi (a major employer and automotive supplier) and its economic dependence on the auto industry, Kokomo, has been, in my experience, a volatile economy subject to wild employment swings.

So, is it any wonder that houses are “affordable?”  I would say the houses are cheap, but I fear that it’s the cheap housing of a municipal economy like Detroit.  Detroit also suffers by being dependent on the auto manufacturers for employment, which subjects them the severe swings with every business cycle.

So, does it make sense to buy a house in Kokomo?  Well, that’s an individual decision, but I would perceive buying a house in Kokomo, Indiana as a riskier act than buying a house in a community that has more stable and diversified employment.  After all, there were probably home buyers that thought they were getting a steal on a home in Detroit a few years before the neighborhood crumbled around them.  Buying a cheap home in struggling municipality may be a bad deal, even at a good price.

* Someone answer me this: if a media outlet is going to simply reflect a press release without adding any significant fact-checking to the article, why write an article?  Why not just copy-paste the press release?  And they wonder why news publishing is dying…

**  What the what!  That median income number is a lot higher than I would’ve expected, given my personal experiences in Kokomo.

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