Home prices have tumbled from their heights, but their fall still hasn’t made much of a dent in the nation’s housing affordability woes. In fact, "even with widespread price declines, affordability for would-be homeowners has not improved significantly."

That’s one conclusion of "The State of the Nation’s Housing 2008," a report published earlier this year by Harvard University’s Joint Center for Housing Studies.

Home prices have tumbled from their heights, but their fall still hasn’t made much of a dent in the nation’s housing affordability woes. In fact, "even with widespread price declines, affordability for would-be homeowners has not improved significantly."

That’s one conclusion of "The State of the Nation’s Housing 2008," a report published earlier this year by Harvard University’s Joint Center for Housing Studies.

The report received plenty of ink from news outlets, but most of the stories (perhaps rightly) focused on its dire analysis of the current housing crisis and poor outlook for a recovery. The report was also noteworthy for its consistent warning about the sad and sorry state of housing affordability. In theory, lower home prices should have made housing more affordable. But in reality, higher interest rates and homeownership costs have combined with flat wages to make housing less affordable not only for low-income families, but also for many middle-income households.

Here are some other snippets on this subject from the report:

  • "At last measure in 2006, 39 million households were at least moderately cost-burdened (paying more than 30 percent of income on housing) and nearly 18 million were severely cost-burdened (paying more than 50 percent). From 2001-06, the number of severely burdened households alone surged by almost 4 million. Because of the unprecedented run-up in house prices and lack of real income growth, over half of this increase was among homeowners."
  • "For homeowners earning more than the median income, the likelihood of being housing cost burdened nearly doubled between 2001 and 2006."
  • "Households with children are more likely to face crowded or inadequate living conditions."
  • "Losses of low-cost rental housing are alarmingly high."
  • "Despite the alarming affordability problems, housing assistance remains a small and shrinking share of the federal budget."
  • "Thus far, there has been little national outcry about the fact that growing numbers of low- and middle-income families are spending half or more of their incomes on housing, and that so many children are living in unhealthy, unsafe conditions — or, worse yet, forced to make their way on the streets. The grim plight of many veterans has also failed to rally a groundswell of support to tackle these urgent issues."

The report might also have mentioned another point of interest, which is that many Realtors likely don’t earn enough money to own their own home today. Realtors do own property: 41 percent own at least one investment home, 17 percent own at least one vacation home and 13 percent own at least one commercial property, according to a 2008 member study conducted by the National Association of Realtors. But with a 2007 median income of $65,200 for brokers and only $31,000 for sales associates, a first home might still be out of reach for many.

Other measures of affordability, such as the First-Time Buyer Housing Affordability Index tracked by the California Association of Realtors, also suggest that housing isn’t all that affordable. The FTB-HAI found that 44 percent of households in California could afford to purchase an entry-level home in that state in the first quarter of 2008. That was a dramatic improvement compared with the prior-year figure of only 26 percent, but still not a number to crow about, particularly when the state’s median annual household income is $50,700 and the monthly payment utilized to calculate the recent index was $2,260, which equates to a whopping 53 percent house payment-to-income ratio. That payment includes property taxes and homeowner’s insurance, but not utilities, association dues or home maintenance and repair costs.

Real estate professionals should be concerned about housing affordability because over-burdened renters are in no position to purchase a home just as over-burdened homeowners are in no position to trade up to a more costly residence. And as affordability woes creep up the income ladder, the effect of those lost opportunities on realty companies may become even more severe.

What’s more, what happens in housing reflects — positively or negatively — on people who labor in the housing sector. Remember the glory days when people were excited about housing? Affordability constraints and today’s crippled mortgage sector have made those glory days less likely to return any time soon. That means housing may remain a psychologically dismal subject for some time to come.

Yet the cure could prove to be just as painful as the ailment, if the Harvard report’s conclusions prove prescient:

"At current interest rates," which were lower when the report was published than they are today, "the national median price would have to fall another 12 percent from the end of 2007 to bring the monthly payments on a newly purchased median-priced home to 2003 levels. In 40 metros, prices would have to drop by more than 25 percent. Even if interest rates were to come down by a full percentage point, the national median home price would still have to decline by 2 percent — and by more than 25 percent in 18 metro areas — to reduce mortgage costs to 2003 levels."

Even then, "only first-time buyers still able to qualify for a loan (would be able to) take full advantage of the improved affordability brought on by lower house prices. Most repeat buyers must sell their homes at discounts similar to those on the homes that they buy."

If you don’t like the sound of that, what’s your solution?

Marcie Geffner is a freelance real estate reporter and former managing editor of Inman News.

Copyright 2008. Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.

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