Real estate used to be considered a boring, safe asset. Your ROI might not be spectacular, but your exposure to loss was minimal. Not any more. In years past, an increase in affordability would have meant an increase of people in the market, not any more. Owning a home as gone from being considered a safe investment to a risky one:
The National Association of Realtors calculates a housing affordability index by calculating how much income is needed to purchase a median-priced home at current mortgage rates.
Back in 2006 when housing was peaking, the NAR says, the composite index was close to 100, meaning the median family income was about equal to the income needed to qualify for a 30-year mortgage.
In the first five months of this year, the index has averaged 171.2, meaning the median income earned in the U.S. is almost double what is needed to buy a home. Except for a brief period of 2009, that’s the best reading on record.
Even with the loss of the tax credit, affordability isn’t the issue. The problem is the labor market.
Unemployment has left millions unable to qualify for a mortgage. Millions who are still working are so jittery about job security that they do not want to commit to long-term debt.
That pessimism was clear in the July consumer confidence report put out by the Conference Board. The overall index fell to 50.4 this month, from 54.3 in June. After gaining ground during the spring, confidence is back to its lowest reading since February.
Millions of houses on the verge of foreclosure threaten to send homeownership to its lowest level in 50 years, according to new industry estimates.
Fresh projections say the rate could plummet to about 62% as early as 2012 and almost certainly by the end of the decade. Homeownership rates haven’t been that low since they hit 61.9% in 1960.
The share of households that own their homes has been sliding since the housing bubble burst in 2006. The rate fell again in the second quarter of this year to 66.9% — the lowest since 1999 — from a peak of 69.4% in 2004, the Census Bureau says.
Finally, after years of the blogosphere criticizing the “homeownership for everyone” mantra, the policy is being questioned in the MSM. Last week USAToday quoted John Burns, CEO of John Burns Real Estate Consulting and said:
The push to own rather than rent now is being questioned. “A large percentage of households are not responsible enough to handle a mortgage payment,” Burns says. “Growing homeownership is a great goal but you have to grow the percentage of households that are responsible.”
As we’ve said since we opened our doors here in 2006. Pushing policies to shoehorn everyone into a home is irresponsible. If the goal is to achieve higher homeownership rates, it should be achieved by increasing economic activities for people and letting them choose to own a home, rather than believing that somehow if you give someone a home, it will magically transform their economic picture and allow them to afford it.