Tag Archives: Affordable housing

JCHS: Housing Recovery Unlikely to Ease Renter Cost Burdens

Housing Recovery Unlikely to Ease Renter Cost Burdens

by Chris Herbert
Research Director

The headlines continue to trumpet good news about the housing market, including falling vacancy rates and increased construction in rental housing markets across the country. But the flip side of this good news for the rental market is that the share of renters who face severe cost burdens, paying more than half their income for housing, has surged in recent years. As documented in our most recent State of the Nation’s Housing report, the number of renter households facing severe cost burdens reached a new record of 11.2 million in 2011, an increase of 2.5 million households since just before the recession in 2007 (see Figure 1). To make matters worse, this rise comes on the heels of what had already been a decade of worsening rental affordability; the number of renters facing severe housing cost burdens increased by 1.4 million between 2001 and 2007.  In all, the decade from 2001 to 2011 saw an increase of more than 50 percent in the incidence of severe rental cost burdens.

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Notes: Severely cost-burdened households spend more than 50 percent of pre-tax income on housing costs. Source: JCHS tabulations of US Census Bureau, American Community Surveys.
To a substantial degree, the sharp rise in renter cost burdens reflects the significant growth in the number of low-income renters who are most likely to struggle to afford housing.  Between 2007 and 2011 the Great Recession pushed the number of renters earning less than $15,000 up by 1.8 million, while those earning between $15,000 and $30,000 rose by 1.1 million. ($15,000 roughly corresponds to what is earned by those working year round at the federal minimum wage.) But over the same time frame, rising rents made it even more likely that households within these income bands would face severe burdens.  Over this four year period, the share severely burdened households among those earning less than $15,000 rose from 67 to 71 percent, while among those earning between $15,000 and $30,000 the share rose from 29 to 33 percent.
But while the number of low-income renters has risen sharply, the supply of housing they can afford has at best remained stagnant (see Figure 2).  In 2011 there were 12.1 million extremely low-income renters who earned 30 percent or less of median incomes in the areas where they lived.  (This is a common income cutoff for eligibility for housing vouchers and is roughly equivalent to our $15,000 threshold but is adjusted for differences in area incomes and family size.)  Meanwhile, there were only 6.8 million rental units affordable at this income cutoff, representing a gap of 5.3 million housing units.  The shortage of affordable housing is made worse by the fact that many of these affordable units are occupied by higher income households. When the number of units affordable for extremely low-income households and available to them is considered, the supply gap in 2011 was even larger – 7.9 million units.  The magnitude of this supply gap testifies to the fact that it is nearly impossible to produce new housing at such low rents, and almost as difficult to maintain existing housing. In fact, 650,000 housing units renting for less than $400 a month in 2001 were permanently lost from the housing stock by 2011.
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Note: Extremely low-income households earn less than 30% of area median income.
Source: JCHS tabulations of US Census Bureau, American Housing Surveys.
With the market unable to supply housing affordable for the nation’s lowest-income households, addressing the problem of rising rent burdens may largely come down to efforts to increase household incomes. But there will always be some households facing temporary financial struggles and others facing long-term challenges who will need more assistance to afford decent housing. Currently, only one in four of those eligible for federal assistance are able to obtain subsidized housing. Those who do are among the nation’s most vulnerable families and individuals – 35 percent are disabled, 31 percent are age 62 or older, and 38 percent are single parents with children. With the population of households struggling to afford housing at record levels and continuing to expand, there is a compelling need to assess whether existing resources for assisted housing are both sufficient to meet the need and being used effectively through current programs.
But while options for reforming the housing finance system have been subject to a vigorous debate, to date the issue of how to address the significant problem of rental housing affordability has received relatively little attention.  The Bipartisan Policy Center’s (BPC) Housing Commission report this past year was a notable exception as it both framed the importance of this issue and advanced specific policy options that should be considered.
The next snapshot of renter cost burdens will come this fall when the 2012 American Community Survey is released.  But as we showed in this year’s State of the Nation’s Housing report, rents are continuing to increase in markets across the country, against a backdrop of continued stagnation in household incomes. As a result, it is likely that this more up-to-date data will once again find that rental housing affordability has only gotten worse. Hopefully, the BPC report will start a dialogue on what should be done to address this urgent problem.

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JCHS: A Housing Recovery, but Not for All Americans

A Housing Recovery, but Not for All Americans

by Eric Belsky
Managing Director

Driven by rising home prices and growing demand, the U.S. housing recovery is well underway, according to our latest State of the Nation’s Housing report released today. While still at historically low levels, housing construction has finally turned the corner, giving the economy a much-needed boost. But even as the recovery gains momentum, millions of homeowners are still delinquent on their mortgages or owe more than their homes are worth, and severe housing cost burdens have set a new record.

Driven by an increase of 1.1 million renter households, last year marked the second consecutive year of double digit percentage increases in multifamily construction. But the flip side of the strong rental market was the continued slide in homeownership rates. Even as historically low interest rates have helped make the monthly cost of owning a home more favorable than any time in the past 40 years, the national homeownership rate fell for the eighth straight year in 2012. The drop was especially pronounced for 25–54 year olds, whose homeownership rates were at their lowest point since recordkeeping began in 1976.

Note: White and black households are non-Hispanic; Hispanic households can be of any race.
Source: JCHS tabulations of US Census Bureau, Current Population Surveys.

Tight credit is also limiting the ability of would-be homebuyers to take advantage of today’s affordable conditions and likely discouraging many from even trying.  At issue is whether, and at what cost, mortgage financing will be available to borrowers across a broad spectrum of incomes, wealth, and credit histories moving forward.

And while the recovery is good news for many, the number of Americans shelling out half or more of their incomes on housing is at an all-time high. At last count, 20.6 million households were shouldering such severe burdens, including nearly seven out of ten households with annual incomes of less than $15,000 (roughly equivalent to year-round employment at the minimum wage). But, the report notes, even as the need has never been greater, federal budget sequestration will pare down the number of households receiving rental housing assistance.

Notes: Severely cost-burdened households spend more than 50 percent of pre-tax income on housing costs.  Incomes are in constant 2011 dollars, adjusted for inflation by the CPI-U for All Items.
Source: JCHS tabulations of US Census Bureau, American Community Surveys.

With rising home prices helping to revive household balance sheets and expanding residential construction adding to job growth, the housing sector is finally providing a much needed boost to the economy, but long-term vacancies are at elevated levels in a number of places, millions of owners are still struggling to make their mortgage payments, and credit conditions for homebuyers remain extremely tight. It will take time for these problems to subside. Given the profoundly positive impact that decent and affordable housing can have on the lives of individuals, families, and entire communities, efforts to address these urgent concerns as well as longstanding housing affordability challenges should be among the nation’s highest priorities.

Download the 2013 State of the Nation’s Housing report.

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PIMCO: The U.S. Housing Market’s Road to Recovery: Slower Speed Limits and Stricter Enforcement

The U.S. Housing Market’s Road to Recovery: Slower Speed Limits and Stricter Enforcement

Michael CudzilDaniel H. Hyman

Picture a six-lane highway with roughly 110 million cars. The posted speed limit is 55 miles per hour, but there is not a police officer in sight. Since there have not been any major accidents in years, it is common practice to travel at 90 miles to 100 miles per hour, and insurance companies are lowering their premiums – often regardless of the state of the cars.

That describes the U.S. mortgage market from 2003 to 2006. The story ended exactly as you would imagine: a massive accident with severe repercussions not just for housing, but also for the financial system and the global economy.
Today, the six-lane highway has been reduced to three lanes, as origination capacity has been halved. One is a fast-pass lane for customers who have been sitting in traffic the past couple of years and are now being rewarded for good behavior with access to historically low mortgage rates: the HARP lane. (The Home Affordable Refinance Program helps homeowners refinance who are underwater or near-underwater but current on their mortgages.) But for everyone else, the speed limit has been reregulated to 35 miles per hour. There are police officers at every mile marker, and the insurance companies are charging much higher premiums.
Where do we go from here?
Despite fewer lanes on the mortgage highway, we believe the U.S. housing market has bottomed and is showing clear signs of a gradual and broadening recovery. The upward trajectory of housing prices should continue at a moderate pace. Over the past 100 years, housing has appreciated at roughly the rate of inflation. It is only in the past 10 years that housing has traded with substantial volatility due to leverage and “affordability” products. We believe the tailwinds are in place for an 8%–12% appreciation in housing over the next two years. Over the longer term, we expect a return to historical normal performance for housing relative to the rate of inflation.
We consider several dynamics in developing our outlook on housing: household formation, inventories, affordability and access to credit and lending.

Read More …

 
Conclusion
We remain constructive on the state of the housing market but recognize the road is far from smooth.
On balance, we believe the positives outweigh the negatives and look for housing to appreciate 8%–12% over the next two years. Housing should have positive influences on consumer confidence and labor mobility.
In terms of investment implications, we believe both agency and non-agency markets offer opportunities to generate excess returns, while active management should be able to add value to structural allocations. Agency mortgage securities offer liquid investments that can be traded against each other as well as against other liquid interest rate markets, specified mortgage pools and, less frequently, structured mortgage products.
Non-agency mortgages continue to offer the best risk-adjusted returns in the sector, but specific security selection will matter much more given their recent high returns. Compared to investing directly in real estate, which requires time to close, lawyers, insurance and transaction costs, non-agency mortgages offer similar returns without the friction. Pairing non-agency mortgages with agency mortgage-backed securities potentially provides an attractive return profile across a wide range of economic outcomes.

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Eye on Housing: How Big a Home Do Home Buyers Want?

How Big a Home Do Home Buyers Want?

from Eye on Housing by Rose Quint

In the world of home buyer preferences, there is one question that pops up more often than any other:  how much space are home buyers looking for?  NAHB’s study What Home Buyers Really Wantanswers this important question, based on responses from more than 3,600 home buyers, sampled to represent all home buyers in the country[1].

Among all home buyers combined as one group, the median home size desired is 2,226 square feet.  However, a closer look at the data broken down by various buyer characteristics shows there are significant differences in how big a home different types of buyers really want.

Age, for example, plays an important role, with the amount of space desired dropping steadily as the age of the buyer increases.  Among those younger than 35, the size desired is 2,494 square feet, compared to 2,065 square feet among those 65 or older (Figure 1).

Figure1Blog2

Race and ethnicity also affect home size preferences, as minority buyers tend to want more space than White, non-Hispanic buyers.  While the latter report wanting about 2,197 square feet, Asian buyers desire to have 2,280 square feet, Hispanic buyers want 2,347 square feet, and African-American buyers want 2,664 square feet (Figure 2).

Figure2Blog2

Estimates from the U.S. Census Bureau indicate that the median size of all single-family homes started in 2012 was 2,309 square feet (the average was 2,521 square feet).  After peaking in 2006, the median home size fell in 2007, 2008, and 2009, but then reversed course and has now risen for three consecutive years.  The reason for this reversal, to a large extent, has to do with buyers’ ability to access credit.  In recent years, the less financially-solid buyers have been shut out of the new home market by overly stringent mortgage lending requirements.  As a result, homes built in the last few years reflect the preferences of those who are still able to obtain credit and have large down payments – typically wealthier buyers who can afford larger homes.


[1] Survey participants are representative of all home buyers in the country, across geographic, age, income, and race groups.

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JCHS: More Working Americans Struggling to Afford Housing

More Working Americans Struggling to Afford Housing

by Eric Belsky

Managing Director
With growth in incomes lagging growth in housing and utility costs, the share of Americans spending large sums of their income on housing has climbed nearly uninterrupted for decades.  But the Great Recession has taken an especially heavy toll, as millions of families have slipped down the income scale due to job loss or curtailment of hours. Indeed, while households with incomes under $15,000 made up only 12 percent of all households in 2001, they made up 40 percent of the net growth in the number of households over the past ten years. Faced with reduced incomes, some of these households have moved so that they can save on housing costs but many others are instead stretching to make their rent or mortgage payments.As shown in Figure 1, even households with incomes above $15,000 (slightly above the equivalent of full-time work at minimum wage) are finding it harder to keep up with housing costs.  Fully 64 percent of all households with incomes in the $15,000-$30,000 range are housing cost burdened, spending 30 percent of their income on housing and utilities. Among those with incomes of $30,000-45,000, a smaller but still substantial 42 percent are cost burdened, while more than a quarter of those with incomes in the $45,000-$60,000 range are cost burdened. These shares are each up over seven percentage points across all three of these income bands in just the past ten years.

Notes: Income groups are defined using inflation-adjusted 2011 dollars.  Cost-burdened households spend more than 30% of pre-tax household income on housing costs. 

Source: JCHS tabulations of US Census Bureau, American Community Surveys.

Renters and owners are both experiencing rising housing cost burdens. On the rental side, the share of renters with cost burdens has doubled, from a quarter in 1960 to a half in 2011, while the share with severe cost burdens (spending more than half their income on housing and utilities) shot up from 11 percent to 28 percent over that period, spiking in the last decade. Renters with incomes of $15,000-$30,000 who have severe cost burdens climbed from 2.0 million in 2001 to 3.2 million in 2011, and those with incomes of $30,000-$45,000 doubled from 300,000 to 600,000.

Cost burdens have also reached record highs for homeowners. Among homeowners under age 65, 39 percent of those earning one to two times the minimum wage and 18 percent of those earning two to three times the minimum wage are now severely housing cost burdened.

Notes: Income groups are defined using inflation-adjusted 2011 dollars.  Severe housing cost burdens are households who spend more than 50% of pre-tax household income on housing costs. 

Source: JCHS tabulations of US Census Bureau, American Community Surveys.

There is an irony to the situation of homeowners: millions of them can’t take advantage of today’s low rates to lower their housing costs because their homes are worth less than they owe on their mortgages. Despite many federal efforts to ease the path to refinancing for such owners, it remains blocked for large shares of them.  Those who have loans not endorsed by FHA, Fannie Mae, or Freddie Mac are out of luck.  And for those with loans endorsed by these agencies, they may still not meet credit score, debt-to-income ratio, and documentation requirements for refinancing.  Even if existing owners can refinance, loss of an earner or curtailment in hours may result in payments that still stretch them thin.

These affordability problems are not likely to abate any time soon.  Rents are back on the rise, and in many areas sharply. Incomes remain under pressure from high unemployment rates and an ongoing shift in the composition of jobs to lower paying work, where entry-level workers in many key occupations are priced out of affordably covering their housing costs. For example, two-thirds of households that include a retail worker in the lowest wage quartile for that occupation are severely cost burdened, along with seven in ten of those including a childcare worker in the lowest wage quartile for that occupation.

Meanwhile a golden moment is being missed to place people into homeownership at record low interest rates.  Additionally, home prices have fallen by about a third nationally, and by much more in many places. As a result, relative to renting, the cost of owning a home for first-time buyers has not been as favorable for at least 40 years, on average, nationally. But lenders are reluctant to lend, fearful of the impact of new regulations and that they will have to buy back poorly performing loans. As a result, many would-be homebuyers are missing a chance to lower their payments relative to today’s rents and also to lock in their mortgage costs with extraordinarily low fixed-rate loans.

Having so many Americans spend so much on housing is a concern not just for those affected. Housing cost burdens affect the national economy, leaving less to spend on other items and making it harder for Americans to save for the future.  As an example, families with children in the bottom quarter of spenders with housing and utility payments of more than half of total outlays spent a third as much on healthcare, half as much on clothes, and two thirds as much on both food and pension and insurance as those with housing outlays of less than 30 percent. In retirement, more will be entitled to programs like Medicaid, placing strains on social service systems.

Note: Low-Income families with children are those in the bottom expenditure quartile. Severely cost burdened households spend over half of all expenditures on housing; unburdened households spend less than 30 percent.   

Source: JCHS tabulations of the Bureau of Labor Statistics, Consumer Expenditure Survey.

Hemmed in by budget pressures and the enormity of the problem, our political leaders have done little to forestall or address growing housing affordability problems. Federal programs are costly and also have limited reach. Indeed, only about a quarter of all renters eligible for housing assistance (those earning half or less local area median incomes) receive it and there is essentially no comparable program to help struggling homeowners apart from a very small, temporary, emergency program put in place in 2010.

Still, some places at least, have found ways to reduce housing costs in their areas through regulations and land use policies that do not involve taxpayer subsidies or tax incentives.  These include some cities that are relaxing minimum unit-size requirements to encourage production of small micro-units of only a few hundred square feet.  Others with markets strong enough have been offering density bonuses to encourage set-asides of affordable housing units in new construction projects.  Yet most local governments continue to restrict residential densities.  Lenders, meanwhile, are so cautious after having so badly missed the mark with their lending standards that many who could lock in today’s low home prices and record low rates are unable to do so.

Americans will face daunting housing cost burdens that thwart savings and sap spending on non-housing items until: 1) lenders ease standards back to reasonable levels, 2) homebuilders are freed of barriers preventing them from building at greater densities, and 3) governments provide greater tax incentives or subsidies to close the gap for more low and moderate-income households between what they can afford and the costs of market-rate housing.

 

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Read of the Day: Nationwide Housing Affordability Improves in Third Quarter

Nationwide Housing Affordability Improves in Third Quarter

by Rose Quint — Eye on Housing

Lower interest rates helped make homes more affordable to median-income families even as house prices continued to inch up in metro areas across the country in the third quarter of 2012. The NAHB/Wells Fargo Housing Opportunity Index (HOI) rose to 74.1 in the third quarter, up slightly from 73.8 in the previous quarter.

The HOI is the share of new and existing homes sold in a quarter affordable to a family earning the median income.  An HOI of 74.1 means that 74.1 percent of all homes sold during the third quarter were affordable to families earning the national median income ($65,000).

Topping the affordability list for the first time in the HOI’s history, Ogden-Clearfield, Utah, was named the most affordable major housing market (population > 500,000) in the country in the third quarter. There, 93.2 percent of all new and existing homes sold between July and September of this year were affordable to families earning the area’s median household income of $71,500.

Among smaller housing markets, Fairbanks, Alaska, retained its standing at the top of the affordability chart with an incredible 99.4 percent of all homes sold there in the third quarter being affordable to families earning the area’s median income of $92,900.

Meanwhile, New York-White Plains-Wayne, N.Y.-N.J. retained the title of the least affordable major housing market in the country for an 18thconsecutive quarter, with just 28.5 percent of homes sold there being affordable to families earning the area’s median income of $68,300.

The least affordable small housing market in the third quarter was Santa Cruz-Watsonville, Calif., with just 44.4 percent of homes sold being within reach of families earning the median income of $87,000.

For more information on the HOI, including history and details for every metro area covered, please see www.nahb.org/hoi.

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Rising Home Prices Push Affordability Slightly Lower In Second Quarter

Rising Home Prices Push Affordability Slightly Lower In Second Quarter

by Rose Quint — Eye on Housing

The  NAHB/Wells Fargo Housing Opportunity Index (HOI) fell slightly in the 2nd quarter of 2012, down to 73.8, from the all-time record high of 77.5 recorded in the first quarter of the year.  Firming home prices in most metro areas contributed to the small decline in affordability.

The HOI is the share of new and existing homes sold in a quarter affordable to a family earning the median income.  An HOI of 73.8 means that 73.8 percent of all homes sold during the second quarter were affordable to families earning the national median income ($65,000).

The most affordable major housing market (population > 500,000) in this year’s second quarter was Youngstown-Warren-Boardman, Ohio-Pa., where 93.4 percent of homes sold during the period were affordable to households earning the area’s median family income of $55,700.

Among smaller housing markets, Fairbanks, Alaska topped the affordability chart with 98.7 percent of homes sold during the second quarter being affordable to families earning the area’s median income of $92,900.

Meanwhile, New York- White Plains-Wayne, N.Y.-N.J. retained the title of the least affordable major housing market in the country for a 17th consecutive quarter, with just 29.4 percent of homes sold there being affordable to families earning the area’s median income of $68,300 as of the second quarter.

Ocean City, N.J., remained the least affordable smaller housing market in the second quarter, with just 43.8 percent of homes sold in the second quarter affordable to families earning the median income of $71,100.

For more information on the HOI, including history and details for every metro area covered, please see www.nahb.org/hoi.

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