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Causes of Housing Bust Part II: Housing Affordability July 8, 2009

Posted by John Watch in AccuriZ Reports.
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Reported from: Housing In Crisis

Housing Affordability factors have been key in the progression of the economic downturn, according to the latest report by AccuriZ entitled ‘Housing In Crisis.’

Housing Affordability

Housing Affordability

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Based on AccuriZ property data and public records, historical trends of the median sale price of homes and the median income of owners has fallen slightly under 3. In the recent decade however, the rate is slightly above 4. “Many housing analysts site this factor for justification of further declines in the overall value of housing. There is sufficient evidence from the banking industry that can be used to counter this argument,” as stated in the report.

When home ownership standards were lightened, there was a surge. “Beginning in the late 90’s the percentage of home ownership began to increase, reaching a peak of approximately 71.8% in late 2006 early 2007. This represented an increase in ownership of approximately 3.5 million housing units for individuals who previously rented, ” the report said. This is all while renter levels remained stable. People who previously weren’t qualified for mortgages now had the ability to own, and they did.

So the question is, which came first? Was there an initial oversupply of housing? And because of these circumstances, mortgage standards were relieved to fulfill the overwhelming vacancy? Or were the mortgage standards relaxed, and because of this new surge in housing demand, home construction rapidly increased? We have reason to be believe that it was the former. But whatever the case is, these two critical pieces of information; oversupply and ownership surge played a pivotal part in the boom and the bust of this recent economic cycle.

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