The upside of the downslide
Will the Bubble’s Burst Make Housing More Affordable?
By Robert Struckman, 2-04-08
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If you work for a living and shopped for a house anytime in the last six years, I suspect that you felt a little intimidated by the constantly rising prices.
That has always been the downside of the housing boom, right? (That and the fact that our entire economy seems to be teetering as a result of its demise. I mean the bubble going “blam” seems to be scaring Federal Reserve Bank Chairman Ben Bernanke so bad he’s dropping interest rates faster than his, well, I’ll leave that metaphor to your imagination.)
So now that prices have dipped, has housing become easier for working people to afford? That question led Washington, D.C.-based Center for Housing Policy to produce a study, released late last week, which concluded: it has made a difference, but not much.
The real problem, said researcher Maya Brennan, is that home prices and rents have increased at much faster rates than wages in recent years.
“Look at the gap between median home prices and annual salaries in various occupations. It’s so huge,” Brennan said.
In 12 Mountain West markets included in the report (there were none in Montana or Wyoming), Brennan said, only three had homes that would be affordable to registered nurses, which is one of the fast-growing occupations studied in the report.
“The situation does not look particularly good for workers in your area,” Brennan said.
Even if housing prices continue to drop, working people may still find it hard to get into a home because of the national credit crunch.
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Comments
Here's a related video you may enjoy, The Housing Bubble Song:
http://www.youtube.com/watch?v=Ivp4YqGCI-s
You are right: "That's just one aspect of the complex dynamic of supply and demand in the housing market." But each regulation not only pushes up prices on existing homes, regulations push up the prices of any new homes that are eventually built, all of which equates to a built-in structuring of our society: a community affordable only to high income persons. If you take a good hard look at home prices in Boulder, CO, you can see exactly how those results have been accomplished using those regulatory tools.
Those who wish to restrict the use of private property would be well-served to remember how that works.
When the Federal Reserve Bank drops rates that does not necessarily equate to a drop in home purchase interest rates, as was witnessed during the recent rate adjustments. Home loan interest rates went up, not down. Those rate reductions may somewhat lessen the cost of construction financing but not so substantially as to off-set the increased cost of construction materials or the ever-increasing regulatory environment you reference.
It's all simple economics. If you reduce the stock of developable land, you're going to increase prices as long as demand remains constant.
There is an an incentive to builders to build large expensive homes. Quit buying them and they will build smaller homes at lower prices.
As for the regulatory costs - they are real but remember, your property values are frequently enhanced by those same regulations. When the Happy Acres Pig Farm is built upwind of your property you will wonder where those regulations are.
The fact is that housing is a functional market, some bet their future on prices remaining high, they lost. The theme I am reading in the comments is that markets are great, except when we lose, then it must be someone's fault.
And jdj makes an excellent point about land values and regulations. It's hard sometimes to understand the logic of opponents of land use planning. I often hear that regulations drive down land values, and then the same person will complain that they drive up the cost of land. Which is it?