Though Home Prices Appear to Bottom Out, Possibility of Long-Term Slump in Housing Remains
August 6, 2009
As many markets approach trend levels, prospects for home equity in current bubble-inflated markets remains slim.
For Immediate Release: August 6, 2009
Contact: Alan Barber, 202-293-5380 x115 (CEPR); Taylor Materio, 202-662-1530 x227 (NLIHC)
WASHINGTON, D.C. – Many recent accounts of the housing market point to stabilization of prices and slight upticks in sales as turning points in the nation's housing crisis. However, a report released today by CEPR and the National Low Income Housing Coalition (NLIHC) shows that in many current bubble-inflated markets, homeownership may remain a costly and risky proposition for some time to come.
The study, "Hitting Bottom? An Updated Analysis of Rents and the Price of Housing in 100 Metropolitan Areas," compares home prices to annual rents for the largest MSAs in the nation. The study extends the methodology from 2 earlier reports, "Ownership, Rental Costs and the Prospects of Building Home Equity: A Comparison of 100 Metropolitan Areas," and "The Cost of Maintaining Home Ownership in the Current Crisis: Comparisons in 20 Cities," to give an up-to-date portrayal of where the housing market is today and determine if we have hit bottom yet.
The new analysis demonstrates that the ratio of house prices to annual rents are closer to an equilibrium ratio of 15 to 1 than they have been at any point in the last 2 years. Due to the strong likelihood of a jobless recovery and declining growth, however, the demand for housing will continue to suffer.
"The good news here is that the bottom of the housing market may be in sight," said Danilo Pelletiere, NLIHC Research Director and a co-author of the report, "but we can’t be complacent and we shouldn’t waste the opportunity to lock in housing affordability by funding the National Housing Trust Fund."
Current homeowners with a mortgage in many communities will continue to remain underwater for sometime to come – almost half of mortgage holder’s by recession’s end according to Deutsche Bank – increasing the likelihood that under current policies, the rash of foreclosures in bubble markets will continue for some time.
"In communities where foreclosure remains a problem, homeowners should be given the opportunity to remain in their homes as renters paying the fair market rent," said Dean Baker, Co-Director of CEPR and an author of the study. "This 'right to rent' would provide homeowners facing foreclosure in hard-hit areas an important degree of housing security and stability."
The Center for Economic and Policy Research is an independent, nonpartisan think tank that was established to promote democratic debate on the most important economic and social issues that affect people's lives.
The National Low Income Housing Coalition is dedicated solely to achieving socially just public policy that assures people with the lowest incomes in the United States have affordable and decent homes. NLIHC educates, organizes and advocates ensuring decent, affordable housing within healthy neighborhoods for everyone.