The Decline of Homeownership and the Falling Affordability of Housing

According to a recent Harvard University housing study, the cost of U.S. houses rose 5.6 percent in 2016. The report found that more than 38 million Americans cannot afford their housing. This statistic has grown 146 percent within the past 16 years. Harvard’s study ascertained affordability data by following federal guidelines that state households are “cost burdened” if they spend 30 percent of income on housing related fees, including insurance, taxes, and mortgage. Interest rates on homes are on the downturn, and not increasing, contrary to general wisdom.

The 2017 State of the Nation’s Housing report states that homeownership rate dropped to 63.4 percent. In the second quarter of 2016, the rate reached 62.9 percent, a record low since 1965. The research deduces that homeownership continues to decline partially because wages have not kept up with the rising house prices. More portions of homeowners in low-income communities than those in higher-income communities are immersed in mortgage debt, with little opportunity to pay down debt, add to savings, or sell. With homeownership declining, renting is becoming increasingly popular, and rental prices are increasing.

Dan McCue, senior research associate of the Joint Center for Housing Studies at Harvard University explains how unaffordable housing affects GDP,

It forces them to constrict spending on other items, which would reduce spending on other parts of the economy. They would buy less, save less, reduce savings…”For lower income groups, it’s even worse than stagnation. It’s not keeping up with inflation,

says McCue. 70.3 percent of the lowest-income families, who earn less than $15,000 a year, spend over 50 percent of their income on housing.

The question of housing affordability and difference on real home price appreciation has a regional structure. Inflation-adjusted home values on the East Coast and West Coast increased 40 percent since 2000, while home values in metro areas of the Midwest and South have been declining. 45 percent of renting households in metro areas were able to afford their monthly costs for a median-priced home. In metro areas with higher-cost homes of the Northeast, Florida, and the Pacific Coast, less than 25 percent could afford monthly payments. Should the homeownership rate keep declining, rental households might increase by 8.7 million in 2015 to 2025.

Read more here – “Americans Who Can’t Afford Their Homes Up 146 Percent,” (Ben Popken, NBC)

Image Copyright: PhotographerStock Photo, License Summary.

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