Homes Still Cost Too Much
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You would think with home prices still dropping like hailstones in most areas, that homes would be bargains.
The present buyer's market obscures a key fact about the housing crisis though: millions sought the refuge of cheap credit, subprime and adjustable loans during the boom because they were the easiest routes to homeownership in a time when house prices far outpaced income growth.
The sad fact is that the Great American Dream is still out of reach for far too many, and it was the declining affordability of decent houses that was one of the triggers of the housing bust.
It's not that home prices haven't plummeted as banks unload foreclosed homes at fire-sale prices. The national median home price fell to $169,000 in the first quarter, according to the National Association of Realtors. Bank-owned properties are selling at 20 to 50 percent discounts.
"Contrary to popular belief," says Jeffrey Lubell, executive director of the Center for Housing Policy, "the recent decline in home prices has not resolved the nation's housing-affordability problem."
Homes cost too much even before the bubble, so homebuyers were willing to do anything to get into the domicile of their dreams. After all, homeownership is an American birthright, or at least that promise was sold to Americans starting in 1946.
"Buy as much house as you can afford!" That's what the bankers and real estate agents were telling us for generations because of generous tax breaks and easy, often government-guaranteed financing.
Unfortunately, the cost of land, homebuilding, taxes and homeownership far exceed what millions of households are able to cover with nearly stagnant personal income growth in this century. Inflation simply ate away at wages that just weren't enough to pay ever-rising bills for property taxes, maintenance, health care, education and energy.
Even at the height of the boom, researchers at Harvard's Joint Center for Housing Studies found that almost 18 million homeowners were paying more than half of their incomes for housing (about one-third is considered reasonable). They were also hit hard by rising energy costs, which rose twice as fast as total spending from 2004 to 2006.
That wasn't always the best advice. The Harvard group last year found that "nowhere in America does a full-time minimum wage job cover the cost of a modest two-bedroom rental at 30 percent of income." Those stranded in the low-wage service economy, left behind by the technological revolution of the 1990s, could barely afford to rent a decent place in most cities, much less buy.
Those families who are paying more than half of their budget for housing have little to nothing left over for health care, food, clothing and education. That hurts more than 14 million children living in low-income households, whose families had less than $600 per month on average for other essential expenses.
So was anyone surprised when brokers and subprime lenders targeted minority and low-to-middle-income neighborhoods then walked away when they sold trillions of these mortgages to Wall Street and the largest banks? They were selling the American Dream!
From sparkling new suburbs in the Sun Belt to inner cities, cheap money and neutron-bomb adjustable loans meant nobody had to be house poor -- at least for a year or two. Then the explosion hit, and we're still feeling the aftershocks.
Further exacerbating the affordability crisis was the tendency for municipalities to favor upscale, sprawling home developments over middle- and low-income housing.
Since home values are directly fueling property-tax income in most places, nearly every community can get more money for schools and public services. When you base property-tax revenue on home valuations, bigger price tags translate into better-equipped schools, fire stations and libraries.