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June 16, 2010

Harvard's housing snapshot

Harvard's Joint Center for Housing Studies paints a less-than-rosy picture of the market in its newest State of the Nation's Housing report, out this week.

For instance:

One of the biggest drags on the housing market is the high joblessness rate. ... Unfortunately, most economists predict that the unemployment rate will remain elevated as discouraged workers reenter the labor force amid slow gains in jobs.
The overhang of vacant units for rent, for sale, or held off the market (including foreclosed homes) is another serious concern. Despite production cuts of more than 70 percent since 2005, the overall vacancy rate hit a record in 2009. In addition, many current owners are effectively trapped in homes that are worth less than the amount owed on their mortgages. If these distressed owners want or need to sell, their only choices are to walk away from their homes or write a check at the closing table. This will inhibit a recovery in repeat home sales.

Oh, is that all?

No, actually.

The Harvard folks note that even the Treasury Department expects 40 percent of people getting loan modifications through the federal Home Affordable Modification Program will re-default. And once number-crunching is complete, typical U.S. household incomes will "almost certainly" prove to be lower at the end of 2009 than they were at the beginning of the decade, accounting for inflation. And mortgage debt "has never been higher relative to home equity."

The report also notes a problematic trend in the rental market:

Nearly one in four tenants was spending more than half their income on housing costs in 2008. Many more were devoting at least 30 percent of income to rent. (Below that point is usually considered affordable.)

"The erosion of affordability over the last 50 years is striking," the report notes. "In 1960, only 12 percent of renter households spent half or more of their incomes on housing. By 2008, that share had doubled. ... In plain terms, the cost of supplying modest units even in less desirable neighborhoods exceeds the rents that large fractions of renter households are able to pay."

Joblessness and competition from homeowners-turned-landlords since 2008 has sent rents downward in many places. But renters earning less than they did two years ago don't see a net benefit from that change.

Tenants, are you able to find affordable places to live?

Landlords, what are the key factors keeping you from lowering your rents? Your mortgage payment? Property taxes? Maintenance needs?

Posted by Jamie Smith Hopkins at 7:00 AM | | Comments (2)
Categories: Housing stats, Renting


The 50 year erosion of rental affordability trend mirrors a trend that took the median home price to median income multiple from 2.5 to 5.0 during the same period. Loose credit begets the need for more loose credit and the end result is everyone paying more interest to bankers or rent to landlords (most of which is funneled through as interest to bankers).

There are actually more homes per person now than there were in 1960, 2.3 people per housing unit today compared to 3.1 in 1960. This is the type of raw data the BLS invented hedonistic adjusters to mask over.

I've always thought keeping one's housing costs to roughly 30% of net income was a good rough guideline for life but I've never thought of the 30% rule as a good measurement of housing affordability. There are too many other factors at play. A person’s career, marital, and family status has a huge impact on affordability, not to mention utility costs, transportation costs, and overall cost of living.

It seems like a lot of the subsidies and tax incentives thrown into the housing market to increase affordability end up having the opposite effect by artificially creating demand that wouldn't otherwise be there. So maybe decreased demand and increased supply won't be so bad for affordability as this continues to shake out.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie

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