(Host) Six years ago, the U.S. housing market collapsed. Commentator and
UVM economist Art Woolf sees signs of improvement but worries about the
tension between affordability for buyers and sellers who want to
protect the value of their homes.
(Woolf) The nation’s housing market hit a peak six years ago. Since
then prices have fallen by thirty-five percent, and if you live in
Miami, Phoenix, or Las Vegas, your house today is worth less than half
of what it was in 2006. In Vermont housing prices are lower than they
were in the middle of the last decade, but fortunately they’re down by
only five or ten percent from their peak levels.
That’s not
great news for homeowners in Vermont, who prefer higher prices to lower,
but it is good news for potential home-buyers whose preferences are
just the opposite.
Despite the conventional wisdom that housing
is becoming more and more out of reach for the typical Vermonter,
housing has actually become more affordable over the past six years.
Housing
affordability is the combination of housing prices, mortgage interest
rates, and the income used to pay for that mortgage. Over the past
several years, all of these have been moving to improve housing
affordability in Vermont.
Clearly falling housing prices are
good for affordability, so what is painful to existing homeowners is
beneficial to potential home buyers.
Even more important,
mortgage rates have plummeted as the Federal Reserve cut short, then
long-term interest rates to try to mitigate the impacts of the financial
crisis and recession. As a result, mortgage rates today are lower than
they have been at any time since the early 1960s. And as anyone who has a
mortgage knows, even small changes in interest rates translate into big
changes in monthly payments.
Although family incomes in Vermont
have grown only slowly over the past few years, they have grown, and by
more than housing prices, leading to improved affordability.
Put
all this together and housing is more affordable today than it was at
any time during the past decade, or in the 1990s or the 1980s or the
1970s. Indeed, the Census Bureau reports that three-quarters of
Vermont’s households own their own homes. That’s higher than at any time
since records have been kept, and gives Vermont one of the highest
home-ownership rates in the nation.
A house is the most
expensive purchase most of us will ever make and it plays a big role in
our standard of living. If housing is expensive, it will be more
difficult for people to move here and for businesses to attract talented
people. More affordable housing is therefore an asset to the state’s
economy and our future well being.
Better housing affordability
is especially important to first-time home-buyers who have not yet built
up any housing equity they can use to offset rising housing prices.
First-time home-buyers are predominantly young people under the age of
35, precisely the type of people Vermont needs to attract to keep our
economy vibrant.
But there’s a constant tension between keeping
housing prices low and the desire of home-owners to pressure state and
local governments to restrict the development of land through zoning and
other means. Those restrictions benefit existing home-owners by
reducing the supply of new houses and increasing their price. In the
long term they make housing less affordable and Vermont less attractive
to workers, families, and businesses.