From The Wall Street Journal:
Why the U.S. Housing Recovery Is Leaving Poorer Neighborhoods Behind
Home prices in wealthier areas are rising, but many poor communities are stuck with a housing crisis that drags on
By Joe Light | Updated June 23, 2015 11:20 p.m. ET
The housing rebound may have lifted home prices across much of the nation. But cities like Lithonia, Ga., are still waiting for the bounce.
Along with other communities in the Atlanta area, the small working-class suburb saw prices run up during the housing boom a decade ago, followed by an epic bust. While nearby wealthier areas are now rising, or even fully recovered, poorer towns such as Lithonia are stuck with a housing crisis that drags on.
Roughly 10,000 homeowners in Lithonia—or 54% of all families with a mortgage—owe more than their homes are worth, according to the online real-estate tracker Zillow. That is a stark difference from wealthy Atlanta neighborhoods like Buckhead, where about 12% of homes are underwater. House values in Lithonia at the end of the first quarter were still almost 35% off their peak, while in Buckhead they were off by only 12%.
Signs of a disproportionate housing recovery appear across the U.S. Nationwide, about 15% of homes worth less than $200,000 were underwater as of the end of March, according to CoreLogic, a real-estate information firm. Meanwhile, just 6% of homes worth more than $200,000 were underwater during the same period.
To be sure, homes across the price spectrum are still below their boom-time peaks. Between January 2006 and May of 2015, the median value of homes in the bottom third of the market has dropped 13% to $101,900, according to Zillow. The median in the middle third is down 6% to $172,600, while in the top third it is off 4.5% to $325,800.
I don’t blame government policies on this: the real problem is that the job market has to support the housing market, and in areas in which there are few higher paying jobs, housing values cannot increase.
We’ve seen this through many, many administrations, Republican and Democrat alike: the housing market has to reflect what people can actually pay, and, realistically speaking, the problem isn’t that home values aren’t increasing in poor areas, but that they are starting to get out of hand again in not-so-poor areas. 38 Gramercy Park North, Apartment 1B, is a 375 ft² studio apartment, on sale for $425,000. That’s utterly ridiculous! Silicon Valley is seeing an exodus of well-paid people because housing prices are so outrageous.
The problem is cultural, and it is two-fold:
- Too many low-income neighborhoods have cultural norms which discourage businesses from locating in areas which would draw workers from those neighborhoods’ population; and
- Too many well-to-do neighborhoods have lost the cultural norms of thrift and reasonableness.
It was the second which led to the housing crisis in the first place: homes became overvalued vis a vis the homeowners’ ability to pay, and conspicuous consumption led to poor decisions with regard to credit and taking out second mortgages to buy consumer goods. While government policies encouraged this kind of activity, these were, and are, still the decisions taken by individuals, and are not things that the President, any President, is forcing people to do.
Which brings us to this article:
More Americans are renting, and paying more, as home ownership falls
By Dionne Searcey | The New York Times
WESTFIELD, N.J. — To Johnnie McDowell, the house on Livingston Street seems to taunt him every time he walks by. It’s nothing special: The two-story home is a bit shabby, and it’s been on and off the market in recent months without finding a buyer. Still, he cannot stop dreaming of a better life for his family as he imagines the extra space inside and his children and dog playing outdoors once he weeds the yard.
The house at 339 Livingston Street is the home that Johnnie McDowell, shown with his daughter, Erin, would like to buy, but can’t afford. Credit Fred R. Conrad for The New York Times
The McDowell family, however, remains squeezed into a rental apartment: a single floor of an oddly configured duplex that Mr. McDowell has fashioned into three small bedrooms for himself, his wife, Takiba, and two children. With a monthly rent of $1,400, car payments, unpredictable family expenses, a spotty credit report and an empty savings account, Mr. McDowell sees no way to soon pull together a decent down payment.
“My wife and I have been wanting to go on the market to buy a house for years now,” Mr. McDowell, 41, said. “But bills, bills, bills and car notes and car insurance. We haven’t been able to save anything.”
In the past, many families like the McDowells, whose household income is almost $100,000 a year, would already be nestled in a starter home, maybe even on the cusp of upgrading to something bigger and more expensive on the profits from their first house.
But even as the market continues to improve — sales of existing homes in May increased to their highest pace in six years, the National Association of Realtors reported on Monday, and first-timers make up 32 percent of the buyers — it is leaving millions of Americans unwillingly stuck in rental housing.
More at the original. I do have a question about the story: Realtor.com shows the home at 339 Livingston Street, Westfield, NJ, as having an estimated value of $220,307, while zillow.com estimates its value at $257,008, but the home is not actually for sale; it last sold in August of 2003 for $237,000. The photo shows a for sale sign in the very unkempt yard, but I could not find any information which actually lists it as being for sale.
But, whether it is actually for sale or not, I have to ask how a two bedroom, one bathroom 520 ft² home with the weeds grown up and a visibly broken fence is worth a quarter of a million dollars? If no one can take the effort to cut the grass, I have to wonder what the inside of the place looks like.
Nevertheless, it’s pretty simple: the too-easy credit which enabled the housing bust of 2008 has been repaired, somewhat, by more reasonable credit restrictions, and those restrictions leave more people on the lower end of the economic scale unable to buy homes because their credit or their income are insufficient. You can’t complain that credit was too easy before the 2008 bust, and concomitantly complain that people on the lower end of the economic scale can’t get mortgages. Mr McDowell has an empty savings account, nothing for a down payment, and a “spotty” credit report; he is exactly the kind of potential buyer that reasonable lending practices say should not get a mortgage!
Mr McDowell, as an individual, might be able to make his mortgage payments, and prove to be a fine and responsible home owner, but if lending practices were to revert back to those which would have allowed Mr McDowell to get a mortgage for that home, then they’d revert back for everyone else, and we’d have the same situation as we had before the bust.