Despite a general drop in home prices during the recession, home affordability problems persist for many Americans, according to recent data from The Urban Institute’s MetroTrends.
Home Affordability Problems Began During Boom
MetroTrends research indicates that during the boom years (roughly 2003-2007), unemployment was low in most of metropolitan America, but average earnings remained essentially flat. In the top 100 metros nationwide, average earnings grew only 1.2% from 2005 to 2007, after accounting for inflation.
And because real rents and house prices rose significantly during this period, housing hardship worsened. The share of households spending 30% or more of every month’s income on rent or mortgage costs climbed from 30% in 2000 to 40% in 2008.
Lower Prices Don’t Ease Problems
Since the recession started, unemployment has spiked, jumping from 4.6% among the top 100 metros in 2007 to 9.6% in October 2009. In addition, MetroTrends analysis indicates average earnings have declined, although 2009 data aren’t yet available, and house prices have plummeted.
However, average home prices remained 26% higher in 2009 than in 2000. And most families’ monthly rent or mortgage payments haven’t fallen because they haven’t yet moved or refinanced. At least for now, housing affordability problems are more prevalent, not less.
MetroTrends says one indication of deepening hardship in the downturn is the recent rise in food insecurity. Until 2007, about 11% of metropolitan households experienced food insecurity. But in 2008, this share climbed to almost 15%.
Coastal Metros Hardest Hit
Residents of coastal metropolitan areas have been especially affected by housing hardship. In metro Los Angeles, for example, the share of households with unaffordable housing cost burdens topped 50% in 2007. And in the Miami region, 53% of households lived in unaffordable housing.
Coastal areas of California, Florida and the Northeast and Mid-Atlantic have been especially hard hit. Twelve metropolitan areas in central and southern California have 43% or more of their population spending 30% or more of their income on housing costs. Florida has three metropolitan areas with 43% or more of their population spending this much on housing costs, as well as four areas with 37-42.9% of residents spending this amount.
The Northeast and Mid-Atlantic only have two metropolitan areas with have 43% or more of their population spending 30% or more of their income on housing costs, but have at least 10 metro areas with 37-42.9% of residents spending this amount. The only other state with a metropolitan area where 43% or more of residents spend 30% or more of their income on housing is Nevada (Las Vegas).
Hope for Improvement Exists
MetroTrends predicts that during the next five to 10 years, as the economy recovers and housing values stabilize, there’s a reasonable chance for better alignment of housing costs and incomes, because housing markets will likely recover without immediately forming another bubble. If house values increase moderately as employment and earnings gradually return to normal, more families will find their housing costs affordable. The lowest-wage workers still won’t find much housing that they can reasonably afford, however.
Short-term Unemployment Hits Mortgages Hard
While the long-term unemployed have suffered the most during the Great Recession, a recent survey from the Pew Research Center found that shorter spells of unemployment also have been painful for many Americans and their families.
For example, one-third of all long-term unemployed (33%) say they have had problems paying their rent or mortgage, identical to the proportion of those unemployed less than three months who experienced difficulty paying for housing.
However, this proportion is more than double the share of Americans who have not been jobless at any point during the recession but who have had difficulty paying for housing during the recession (16%).
