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Housing Market Inequality
July 20th, 2015 2:46 PM

Housing Market Inequality

There is undoubtedly a subset of Americans that no longer feel the effects of the housing crisis in 2008, as evidenced by headline articles proclaiming the real estate market is back, but this does not hold true for everyone. In a substantial number of lower income and working class communities, housing prices remain frozen below their inflated pre-bubble levels. This situation of sluggish housing price gains is occurring throughout entire neighborhoods, leading to above average foreclosure rates and a housing market that is stuck in 2nd gear.

In order to properly understand what is contributing to the housing market conditions, we want to explore 3 specific problem areas...

1. Sane Mortgage Underwriting Practices

The dilemma that the housing market currently faces can be traced back to 2008, which marked the return to sane mortgage underwriting practices. What seemed like an improvement post 2008, made way for the current status of the market. According to Elyse Cherry, CEO of Boston Community Capital, ”Loan officers are no longer handing out mortgages left and right, but instead are tying them to borrowers’ income”.

This means that the only possible ways in which housing prices can rise is if incomes increase, or if individuals spend a larger portion of their income on housing. Cherry continues by stating, “Absent an extraordinary increase in income for low-income families, home prices in low-income areas aren’t going anywhere.”

There are no signs of any significant changes in mortgage underwriting process based on banks’ current record profits.

2. Soaring Rents

Along with our previous reason for the current status of the housing market, the crises regarding high-rent grew out of the housing market collapse of 2008. The large loss of jobs combined with the plummeting housing market lead to foreclosures, and over 3 million home owners looking for a rental. Now vacancies are few and far between, resulting in what experts aptly refer to as a “severe rent burden”.

This burden falls on one of every four renters, who are further impacted by federal housing programs that were cut. With millions of more renters expected to enter the market over the next decade, the issue of soaring rent will continue to take its toll.  Many pundits are suggesting a potential crisis on the horizon.

There ARE some lights at the end of the tunnel that can be found in the investment and construction of affordable housing, but it nearly all is coming from federal funded programs and not private sector developments

3. Lack of  Assistance for Low Income Renters

By closely examining points 1 & 2, you can gather that much more work needs to be done in regards to assistance for low income renters. Households burdened by high rent are regularly under the threat of eviction. There is little to no room left for unexpected medical bills, or a sick day at work, when half of your paycheck goes towards rent. Despite the undeniable need, 100,000 rent vouchers were cut in the last two years.

Additionally, there haven't been any new public housing units added by the federal government in the last decade. Sheila Crowley of the National Low Income Housing Coalition feels that Congress will not comply to The Department of Housing and Urban Development’s request to fund 300,000 additional housing-choice vouchers for next year. She recently said that” At the very best, what we are doing is defending against losses (of vouchers and public housing). We are not doing anything to increase investment.”

In closing, the large number of lower income communities still experiencing real estate sales’ prices below the pre-recession levels, is not likely to change in the immediate future due to many factors, including these 3 addressed above.  Fortunately, most neighborhoods are experiencing an improvement in foreclosure rates and a gradual reduction in distressed and short sales, but the housing market recovery is clearly still stuck in 2nd gear for many communities in the city of Chicago.

Posted by Michael Hobbs on July 20th, 2015 2:46 PMPost a Comment

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