Builders have not responded as aggressively as they have in the past. There hasn’t been the oversupply [of housing] that is typical in this kind of [business] cycle.
We’ve come a long way from Dennis Capozza’s observation, quoted in Robert E. Lang’s 2002 article ““Is the United States Undersupplying Housing”:https://www.mi.vt.edu/data/files/external%20publications/fmf%20hff%20undersupplying%20housing.pdf.” Lang, writing just as the economic hangover from the roaring 1990’s began to set in, noted that distress in the housing industry tends to drag the entire economy down (whoever would have thought?) but that the accompanying devaluation of homes tends to increase affordability and make homeownership accessible to a wider audience.
The suggestion that, in a perverse, counterintuitive way, the current foreclosure crisis could actually benefit potential low-income homeowners would make economic royalists and fanatical, market-crazy neoliberals across the country squeal with glee. However, further examination of the issue shows that the housing industry’s woes are less Pyrrhic victory than all-out wash for the poor, because accessibility of homeownership to low-income families is much more complicated than just affordability – and in many cases, more affordable and affordable are not synonymous.
Sean O’Toole of the blog “Foreclosure Truth” writes that the 15 markets that have improved most in affordability since 2005 are all in California, with Modesto alone becoming 92% more affordable. Carolyn Said, of the San Francisco Chronicle, writes that People who thought they could never afford a home here are buying foreclosed houses at huge discounts, sometimes more than half off the stratospheric heights they reached just a couple of years ago. Said details three houses that sold for 44% to 150% less than their market values just two years ago – all foreclosed properties.
Yet Said continues:
Of course, the former prices were ridiculous too, hyper-inflated by all the funny money floating around. When anyone with a pulse could get a mortgage, prices rose to absurd levels and put home ownership out of reach for many middle-class people who wanted to stay within their means and avoid risky subprime loans.
So these markets are becoming more affordable relative to their previous prices – but are they actually affordable in absolute terms, or relative to the area’s average wage? Said notes that, in the Bay Area, 30% of households can now afford an entry-level home — up from 24% a year ago.
My quantitative skills — and as a liberal arts major, I admit they’re rudimentary — tell me that, with a continuing 6% increase every year, the housing market would only have to deflate for about 4 more years before 50% of households could afford a home! All right! Score one for social justice!
Pardon me for not being more enthusiastic — I do recognize that for that lucky extra 6%, being able to transition into homeownership represents a tremendous amount of stability and a huge goal accomplished. But the effects of 4 more years of economic malaise would certainly cause more trouble than the minimal gains in affordability would be worth. And in the mean time, what about the other 70% of San Franciscans?
Among that silent majority (and all other renting Americans), the lucky ones are dealing with what Harvard’s Joint Center for Housing Studies have found to be record high average rents, in part driven upward by increased demand on the part of newly-evicted former homeowners and individuals who just a few years ago might buy a home but now are not considered creditworthy. The unlucky ones are finding that investor-owned 1-4 family rental properties account for nearly 20% of all foreclosures, and are facing sudden eviction.
So, for those who do not succumb to still-unaffordable housing markets and sudden rental evictions may find tightening credit markets to prove the silent killer. The New York Times reports that “some lenders are setting the bar for a mortgage as high as a credit score of 720, a debt-to-income ratio no higher than the mid-40’s, and as many as 36 months of payments on hand, in cash.” Considering that the average graduate has $20,000 in debt and a $30,000 salary — a debt-to-income ratio of 66%, no? — college itself, that great stepping-stone into the middle class, may become a barrier to homeownership.
Housing costs may be going down, but they’re still unaffordable to many. It’s more apparent than ever that free markets may produce economic miracles and material gains, but sometimes they leave something to be desired in the arena of social justice.