Housing affordability is likely to remain elusive, study finds

Homeownership will remain out of reach for millions of Americans, despite slumping house prices, unless the wages of low-income people grow faster, a study released Monday said.

A record 37.3 million U.S. households, or 1 in 3, were paying a “moderate cost burden” of 30% of their income toward housing in 2005, according to the State of the Nation’s Housing 2007.

The study said the number of households with that cost burden had risen roughly 20% since 2001, when interest rate cuts helped spark a price boom.

Improving housing affordability would require an increase in low-income family wages, looser home-building regulations and more spending from the federal government, according to the report.

However, those changes were unlikely in the short term and many Americans were likely to be priced out of the housing market for some time, said Nicolas Retsinas, an author of the study and director of the Joint Center for Housing Studies at Harvard University.

“Home prices have flattened recently but we don’t see return to widespread affordability,” he said.

The recent meltdown in the sub-prime mortgage market means borrowers with damaged credit may be unable to buy homes, which will prolong the housing slump, Retsinas said.

Weak income growth among lower-income households and restrictive land-use regulations also will worsen affordability problems, the report said.

“The recent uptick in [mortgage] interest rates is going to exacerbate the affordability challenges,” Retsinas said.

While homeownership is out of reach for many Americans, the market must absorb the bloated inventory of unsold homes before it will return to health, the report said.

“The clearest indicator of how much excess inventory exists is the 500,000-plus jump in vacant homes for sale between the end of 2005 and the end of 2006,” the report states.

At the end of March, the portion of U.S. homes empty and for sale rose for the 10th straight quarter to a record rate of 2.8%, according to the Census Bureau.

The report does not forecast an end to the current downturn but notes that strong immigration will brighten the long-term outlook for the housing sector.

“After contributing more than a third of net household growth between 1995 and 2005, new immigrants will likely account for at least that large a share between 2005 and 2015. The children of immigrants born in the United States will also add significantly to household growth,” the report states.