Reasonable Prices Increasingly Scarce in U.S.

Cortney Henderson could be the face of America’s affordable housing crisis.

The 31-year old Californian could never have qualified for a home loan in San Diego, where she lives, and where the median price is $607,000, had she not had $27,000 in savings that she earned as an egg donor. Henderson graduated last year with a Ph.D. in biomedical engineering and is now a researcher at the University of California-San Diego.

Yet she still had to get a loan for the entire price of her $540,000 home, and without the $700 her boyfriend chips in each month, she could never cover the mortgage, insurance and property taxes (PITI), which still eat up almost 70 percent of her gross pay.

“One of the (infertile) couples said to me, ‘You’re helping us fulfill a dream of ours, so we hope you will use the money to fulfill a dream of yours,’” she says. “And I’m like, ‘I want to buy a home. This is enabling me to buy a home. There’s no way I could have done it on my own.’”

Her story points up the extremes to which some Americans are now willing to go to buy a home in some of the most overheated markets. The South Florida housing market boomed for five straight years, but it’s hardly alone. More than 30 areas, including New York, Las Vegas, Phoenix, Sacramento, San Diego and Atlantic City, have seen prices double since 2000.

Even though the real estate boom peaked last year, there’s no end in sight.

Nationally, home prices are still climbing and are expected to rise about 5 percent this year. Coupled with higher mortgage rates, soaring gas prices and ever-present property taxes, home prices are creating an affordability crisis that is rippling through communities across the country.

The consequences are reshaping communities, along with the lives of millions of Americans. They’re affecting children, families, schools, hospitals, businesses and all levels of government, from nurses, teachers and firefighters who can’t afford to live in the communities where they work, to older renters forced to leave their homes because those apartments were converted to condos… ones they couldn’t afford to buy.

As we have seen with many Florida real estate pockets, particularly in the Southern half of the state, prices in San Diego have risen 142 percent since the start of 2000. Only 9 percent of residents could afford the median home if they had to make a 20 percent down payment on the list price. Even so, a dizzying array of high-risk adjustable-rate mortgages has sustained the market by helping more people qualify.

The affordability crisis has driven millions of people into the distant suburbs, crushing transportation networks and doubling commute times.

“People who moved to Temecula, 60 miles from here, five years ago had a 60-minute commute to work (downtown); now, it’s 2.5 hours,” said Jim Waring, head of San Diego’s land use and economic development office. “What does that do to the family?”

What does that do to city services such as schools, fire departments and hospitals? Unbearable commutes are a significant reason police officers quit their jobs, officials say. The crisis is likely to get worse, too, as the Federal Reserve is expected to raise interest rates again this week.

One in five homeowners in the state with a mortgage has an adjustable-rate Florida home loan, which may adjust, as planned, to higher interest rates within two years.

Of course, there are many regions of the country, notably the Midwest, where the real estate market never turned into a frenzy, and prices are still within reach of a working-class family. In Des Moines, Iowa, for one example, the median-priced home can be had for about $150,000.

Still, by a 2-to-1 margin, Americans say that high monthly payments, rather than high down payments, are the chief obstacle to buying a home, a survey from the National Association of Realtors found. Furthermore:

• Of all renters surveyed, about half worry that the cost of housing is so daunting that they’ll never be able to buy a home.
• Nearly 60 percent are concerned that the cost of a home is becoming so unaffordable that it’s hurting their local economy.
• Cities nationwide are losing their middle-class neighborhoods, with middle-income neighborhoods falling to 41-58 percent between 1970-2000.
• The trend was worse in the 12 largest metro areas, among them Los Angeles, Baltimore and Philadelphia.

“This housing crisis is a crisis that is endemic not just in Los Angeles, but in big cities across the country,” said Los Angeles mayor Antonio Villaraigosa. “A great city has a vibrant, strong middle class. A city of rich and poor would be polarized and unable to reach its full potential as a world-class city. That’s my biggest fear. If a teacher, firefighter, policeman or librarian can’t buy a home and enjoy the American dream, then L.A. and cities around the nation won’t be places that most of us will want to live.”

The solutions are at least as complex as the problem.

In super-heated markets, like Los Angeles and Broward County, Fla., local governments typically try to solve the problem with a variety of programs to encourage construction of low-income apartments and cheaper homes, and to offer home loan assistance to working-class families, such as those of teachers and public safety workers. The most common strategies to combat the problem include:

• Bonuses for companies that build higher-density developments.
• Housing trust funds that give financial aid to developers that build low- and moderate-income apartments.
• Stricter zoning rules that require a certain percentage of low-income housing to be included in every development.
• Collecting money from developers and builders who’d rather pay a fee to the city than build affordable housing.
• Financial aid for low- and moderate-income home buyers.

These programs, though, are often underfunded and expensive to administer, and have a limited impact. In the end, the affordability crisis stems from the fact that wages haven’t kept up with the cost of real estate. While average hourly wages have risen about 20 percent since 2000, the national median price has soared 55 percent.