City or suburbia? HUD has the answers.

The Department of Housing and Urban Development (HUD) has unveiled an online calculator that informs homebuyers how affordable living in a particular neighborhood is for their transportation habits.

This affordability calculator focuses on the second highest expense (after rent or mortgage payments) for most families: transportation. It arrives at transportation estimates by considering each household’s:

- income;
- housing costs;
- vehicles; and
- travel patterns, including the distance traveled from home to work each month.

The calculator compares user data with average costs for households of similar size and income. The end result is a user-friendly interface that provides a best estimate for a prospective buyer’s annual transportation and housing costs.

Armed with this information, users can make an informed decision about purchasing or renting a home in a neighborhood far away from their jobs or desired amenities.

first tuesday insight

Affordability is a dangerous concept. Agents often use it as a selling point since it is an abstraction and can easily confuse buyers into thinking they are able to purchase a home that, in reality, they cannot. No standard exists for affordability that matches its use up with any single household. Thus, the word is just noise.

Remember the housing bubble? This is putting it crudely, but agents and loan reps – industry professionals – assisted the bubble’s growth by convincing millions of people they could “afford” to buy a house.

The calculator HUD has produced is a positive step toward clearing up this confusion over affordability. They aim at taking the big picture, with its many variables, into account for your individual homebuyer.

Whether or not this tool will benefit homebuyers depends solely on buyer’s agents. Unfortunately, some agents operating deep in remote suburbia may prefer to keep the affordability illusion alive.

That’s because the city is the hub for jobs and cultural amenities. Living in the ‘burbs means long distance commutes for both. Thus the suburbanite pays twice: lost time spent on the road and money wasted in transportation costs.

This calculator essentially does the job of computing the trade-off between:

higher housing costs (in the city) closer to work and play; and
lower housing costs (in the suburbs) supplemented by higher transportation costs.

This is well and good. But the calculator cannot determine the value of those lost hours spent on the road during the daily commute. For many homebuyers, this time is priceless.

Agent advice

Agents: use this calculator in conjunction with an operating cost sheet to help your clients calculate the true costs of homeownership. The old assumptions no longer hold true — as with all crises, things change. [See first tuesday Form 318]

Going forward, expect to see more households relocating from suburbia to the city. The next generation of homebuyers, Generation Y, desires to reside near work and play, with their Boomer parents likely to soon follow.