OVER THE NEXT FEW YEARS, home prices will decline in more than one-third of the nation's 379 metro areas. The affected markets account for half of the value of America's single-family housing stock, and some could experience price dips approaching 20 percent.
That prediction comes from “Housing at the Tipping Point,” a 195-page study of the residential real estate market in the U.S., produced by Moody's Economy.com. But not everyone agrees: Realty Times disparaged both the tone and conclusions of the study, saying that it“recalls the Dark Ages for the national economy.” Either way, it has added one more voice to the the cacophonous debate about housing affordability, which is a top-of-mind concern for a growing number of Americans. A survey of 2,001 adults that Ipsos, an international market research firm, conducted in September found that 80 percent believes it is hard for most first-time buyers to afford a house, and nearly three-fifths expect the situation to get worse over the next five years.
First-timers aren't the only ones struggling. The Census Bureau estimates that homeowners with mortgages spent, on average, nearly 21 percent of their incomes on housing costs in 2005 (versus 19 percent in 1999), and that more than one-third of those households spent at least 30 percent of their incomes on housing, the point at which homes become “unaffordable.”
The Census Bureau also notes that as home prices rose 35 percent between 2000 and 2005, household incomes during those years inched up only 1 percent, which meant that affordability constraints went well beyond low- or lower-middle–income buyers and owners. The situation could become even more pervasive as trillions of dollars of adjustable-rate mortgages are reset over the next two years.
But while market forces may be pushing prices down, the market itself still can't decide how best to fix the affordable housing crisis. For example, Californians voted this month on funding for housing bonds to spur affordable housing in a state whose own HBA insists that a better solution would be less-restrictive land-use policies.
What's clear, though, is that as the affordable housing shortage shuts out buyers and lowers owners' standards of living, it's only a matter of time before people start screaming at elected officials and the private sector to do more than talk this issue into the ground. If those constituencies get prodded into action, that alone would qualify as this downturn's silver lining.