Forget Boom and Bust; Focus on Value for Your Mortgage Dollar

By Richard Barrington
Local Lender Columnist
Oct 10, 2007
So much attention is focused on the boom or bust cycle of the housing market that it is easy lose track of whether or not housing prices represent good value at a given point in time. A CNNMoney study has identified what it calls the 25 most affordable cities--and three of them are in Michigan, within commuting distance of Detroit.

A look at a typical mortgage payment in these communities as a percentage of the average income shows just how affordable they are.

Michigan's Most Affordable Mortgages

The three suburbs of Detroit cited in the CNNMoney study are:

• Lincoln Park, Michigan. Assuming a 30-year new home loan at current rates and representing 80% of the average home price, we calculate that a monthly mortgage payment would represent roughly 10% of this community's average income.
• Melvindale, Michigan. In Melvindale, the average income is a little lower than in Lincoln Park, but home prices are lower as well. Using the same methodology as above, a new home loan would have a monthly payment again representing about 10% of income.
• Harper Woods, Michigan. Harper Woods is a little more upscale than the other two Detroit suburbs, with average incomes and home prices both higher. The result is that a new home loan would have a monthly payment representing 10.2% of income.

Keep Your Eye on the Fundamentals

Ultimately, what matters to your ability to pay your mortgage is the level of housing prices relative to your income. The averages for the three cities mentioned above are all very reasonable portions of income to spend on mortgage payments. This is the kind of fundamental analysis that will cut through what is happening in the housing market in general, and identify what the specifics mean to you.

Sources
CNNMoney.com Yahoo! Real Estate

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.