Harvard: Hot Housing Market Masks Eroding Affordability & Mounting Risks

[Carolab]

I find it interesting that just as MSN runs a headline today proclaiming there is no housing bubble, I received this in my e-mail (it comes from the real estate industry itself). It seems it's not a "bubble", but an "affordability" problem--isn't that just another way of saying that housing prices are TOO HIGH?


RISMEDIA, June 14 – Even though the U.S. housing market is continuing to break records, various risks are on the horizon that could pose serious problems for homeowners in the future, according to a new Harvard study.

This analysis comes as affordability continues to be a dilemma for many Americans, the Joint Center for Housing Studies reports.

In 2004, housing markets posted record growth. Homeownership reached an all time high of 69 percent, with households of all ages, incomes, races and ethnicities joining the home buying boom. Single-family starts hit a record 1.6 million units, while new and existing home sales grew to nearly 8 million. Mortgage product innovations helped markets stay hot. Subprime loans gave millions with blemished credit records, who would previously have been denied a loan, the chance to buy a home.

Meanwhile, interest-only and adjustable rate loans are helping blunt the impact of higher home prices. Indeed, adjustable rate mortgages accounted for more than a third of all mortgage loans last year and interest-only loans for nearly one-quarter.

“The irony of today’s housing market is that while fundamentals are supporting record levels in residential investments, housing affordability problems are climbing the income scale,” says Nicolas P. Retsinas, director of Harvard’s Joint Center for Housing Studies.

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“While the future looks bright for housing investment, there is little cause for optimism that the nation’s housing affordability challenges will diminish; in fact they are growing worse,” says the center’s Executive Director Eric Belsky. Between 2000 and 2003 alone, the numbers of households spending more than half of their income on housing increased by 2.5 million. “Housing affordability is a chronic problem and narrowing the gap between what decent housing costs and what low-wage workers and retirees can afford will remain a major national challenge.”


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http://www.rismedia.com/index.php/article/articleview/10645/1/1/