PARAMOUNT MORTGAGE - LENDER'S BLOG

Housing Affordability Surges Report Says

Cambridge, MA - Harvard University's Joint Center for Housing Studies released a comprehensive homeownership study in June which provides an in-depth analysis of the current state of the nation's housing market.

While the negative metrics of the economy are chronicled throughout the report, housing affordability achieved a "dramatic increase" producing growth in first-time home buyers.

"For those households able to avoid unemployment, meet tighter underwriting standards, and put more money down," when purchasing a home, their mortgage payments were the most affordable in years.

At the height of the housing boom, mortgage payments on a median-priced home peaked at 37.7 percent of median household income. In the first quarter of 2010 "payment-to-income ratios hit a new low of 18.9 percent."

Low interest rates and falling median home prices contributed to the lower payment-to-income ratio. The report states "the median home price dropped from $227,100" in 2006 to a low of "$166,100 in the first quarter of 2009".

Rates on a "typical 30-year fixed mortgage slipped from 6.6 percent to 5.0 percent," during the same period.

As a result, "monthly payments for a median priced home with a 90-percent mortgage fell by more than a third, from $1,300 to $800."

This improvement in affordability was widespread with more than 80 percent of all metro areas reporting lower payment-to-income ratios considerably lower than the highs of the '90s.

According to the National Association of Realtors, the first-time homebuyer share of the housing market climbed from 2006's 36 percent and surged to a high of 45 percent in 2009.

Without these first-time homebuyers, who added "roughly 306,000 sales in 2008-9," overall sales would have "fallen by 63,000" for that period.

The report cites the homebuyer tax credit program as "an important catalyst," for the surge.

The 19 contributing authors of the Harvard study reported "the first-time buyers' share of home sales typically decreases during expansions and increases during recessions." A hot housing market will "price first-time homebuyers out of the market while existing homeowners take advantage of rising prices to trade up."

While the present housing market entices buyers with more affordable housing prices, tighter underwriting standards make qualifying for a mortgage more difficult. "Lenders have reduced maximum debt-payment-to-income ratios, but are requiring larger down payments and higher credit scores."

The study's authors proffer "stricter underwriting can limit the pool of potential homebuyers." At the 38-percent-of-income standard, 17.8 million renters nationwide could qualify with their income for the median priced home in 2008. At a more stringent 28-percent standard, only 12.5 million renters would have qualified.

For the 5.3 million pool of renters that would not qualify for the stricter 28-percent standard, "home prices would have to drop more than 26 percent" in order for them to qualify for a mortgage at the 28-percent-of-income standard.

The State of the Nation's Housing 2010 was authored by the Joint Center for Housing Studies of Harvard University.

Link: Housing