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Housing affordability down even in real estate slump

By Renae Merle
Washington Post Staff Writer
Friday, December 18, 2009; A29

A growing number of lower-income homeowners in the D.C. region spent at least half of their income on housing costs, reflecting a decline in housing affordability across the nation, according to a study released Thursday.

The report by the Center for Housing Policy, which reviewed Census Bureau data from 2005 to 2008, found that low- and moderate-income homeowners and renters have not been able to take advantage of the fall in prices since the housing market peaked in 2006. The report by the D.C.-based nonprofit research group measured homeowners spending 50 percent or more of their income on housing costs, including their rent or mortgage, property taxes, utilities, and homeowner association fees.

During that period, many homeowners faced higher mortgage payments because of adjustable-rate mortgages while others lost their jobs or saw a decline in household income, said Keith Wardrip, the center's senior research associate. At the same time, rental costs did not decline significantly. About 1.7 million new renters were added to the market during that period, including some former homeowners who fell into foreclosure, he said. Also, utility costs rose nearly 23 percent during that period, Wardrip said.

"For low- and moderate-income households who stayed put, affordability may have worsened, because housing costs including utilities have stayed the same or gone up" while incomes have declined, he said.

While affordability for renters was largely stable during that period in the region, the burden faced by homeowners increased, according to the data. In Maryland, 20 percent of low-income homeowners spent at least half of their income on housing costs in 2008, compared with 14 percent in 2005. In Virginia, the number rose to 17 percent from 14 percent.

The District's population was too small to allow the group to provide a breakdown between renters and homeowners, according to the report. But 22 percent of lower-income households in the District, including renters, had a severe housing cost burden in 2008, compared with 19 percent three years before.

That puts the area in line with the national trend, according to the study. The problem was most acute in the West. In California, 32 percent of low- and moderate-income families spent at least half of their income on housing costs. In Nevada, the figure was 26 percent. The burden on working families was smallest in the Midwest, including North Dakota and Nebraska, where 10 percent and 12 percent, respectively, faced that problem.

For new buyers taking advantage of historically low interest rates and the drop in prices, housing affordability has never been better, said Lawrence Yun, chief economist at the National Association of Realtors. "The affordability conditions are better today than in 2008," he said. "Housing costs were a problem during the boom time as well as the time immediately after. Now the market has overcorrected. Prices have crashed through normal."

Middle-income home buyers purchasing a mid-priced home with a 20 percent down payment will now spend 15 percent of their income on their mortgage payments, a historic low, Yun said -- though his figure, unlike the policy center's, includes only the mortgage and not other costs. That compares with a traditional figure of 19 to 20 percent, he said.

But it could get tougher next year. Mortgage rates are expected to inch up, Yun said, and home prices have already stopped falling in some areas. Also, rising unemployment will put pressure on homeowners' income through 2010. "Affordability conditions could weaken for a middle-income person buying a mid-priced home," he said.

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