boston.com
Housing taking a bigger bite
Study: Cost a problem for 30% of households
By Chris Reidy, Globe Staff, 6/17/2003
Nearly one in seven American households spend more than half their income just to keep a roof over their heads, and lenders are giving mortgages to people with weak credit. One result: a sharp increase in defaults, according to a study released yesterday by the Joint Center for Housing Studies of Harvard University.
''The affordability problem has worsened over the past 25 years, especially for middle-income homeowners,'' said Nicolas P. Retsinas, director of the center. Three in 10 US households have ''affordability issues,'' meaning they spend 30 percent or more of their income on housing, he said. That's the highest percentage the center has seen in its 20 years of tracking housing data.
In 2001, the most recent year for which data were available, 7.3 million homeowners spent more than half of their income on housing, compared with 5.8 million in 1997. Nearly 7 million renters were in the same predicament.
Also, mortgage delinquency rates are on the rise nationwide, with an estimated 400,000 to 450,000 homeowners in the process of foreclosure at the end of 2002, the study said. That's almost double the rate in 2000, but well below the peak years in the mid-1980s. A delinquency is when a conventional loan is 90 days past due.
''Expansion of credit since 1993 to homeowners with blemished credit histories has exposed a growing share of borrowers to default risks,'' the study said. ''The concentration of these subprime loans in low-income, especially minority neighborhoods, has exposed some neighborhoods to mounting foreclosures.'' But so far, Boston-area housing advocates have not spotted any signs of increasing foreclosures, they say. ''We haven't seen it yet, but the risk is there,'' said Aaron Gornstein, executive director of the Citizens' Housing and Planning Association.
Flexible mortgage packages, with less stringent down-payment and credit requirements, may be a mixed blessing. On the one hand, they make the American dream of homeownership a reality for more people -- and homeownership rates are rising fastest among minorities. But by taking on a higher percentage of debt than traditional mortgages allow, many low- and middle-income consumers can find themselves vulnerable to foreclosures when the unemployment rate rises. What happens sometimes is that a two-income family qualifies for one of these mortgages, and then a husband or a wife is laid off. In such cases, the mortgage can eat up a sizable chunk of the remaining family income. A traditional benchmark of affordability is spending no more than 25 to 30 percent of one's income on housing. With two young children, Acia Heath and her husband have outgrown the apartment they rent for $1,100 a month in Dorchester. Now, thanks to a mortgage program that requires only a 3 percent down payment for families with annual incomes of about $80,000 or less, Heath figures the family can afford a $350,000 house. But after a year of searching, the only houses they've found in their price range are in Brockton and Springfield.
''If you want something in decent condition in Dorchester, it's $400,000 and up,'' said Heath, 29.
Many consumers can't find houses that fit their budgets because of a supply problem, said Thomas Callahan, executive director of the Massachusetts Affordable Housing Alliance. ''We haven't been building enough housing stock, particularly at the affordable end,'' he said. Yet if there was bad news, there was also good news in the center's annual report.
Retsinas said he does not see a housing bubble about to burst. It would likely take a sharply rising regional unemployment rate or a big jump in interest rates to cause a big drop in home prices, he said. In 2002 -- a record year for residential real estate sales, mortgage debt, and homeownership -- housing helped to prop up an otherwise sluggish economy. Mortgage refinancing put an additional $97 billion into homeowners' pockets. Consumers spent an estimated $164 billion on remodeling their homes. And home equity rose 4.1 percent to $7.6 trillion. As interest rates hit some of their lowest levels in four decades, the US homeownership rate reached 67.9 percent, with ownership rates rising faster for minorities than for whites.
''Housing,'' Retsinas said, ''has been the superhero of the economy.'' |
