Burgess COMMENTARY

Peter Burgess

The U.S. entered the 21st century with a booming housing sector characterized by rapidly expanding homeownership, record home sales, strong house price appreciation, and vigorous housing construction. During the 1997-1999 period, more households became homeowners than in any other three-year period in history. Then in 2007, the great housing bust began, and by 2008, many of the gains of the boom years melted away in waves of foreclosures as home prices fell back to earth and millions of homeowners found themselves under water with their mortgages pegged at higher valuations than their houses. The Case-Schiller Index has been keeping track of this dismal story, and the numbers of foreclosures are tracked by the Mortgage Bankers Association (see the National Delinquency Survey, and scroll down to 'news' for the latest report.)

What happened? The best account is Chain of Blame (2008) by Paul Muolo and Mathew Padilla, both experts in the US housing sector and on Wall Street where the trouble began to spread to the whole world. They explain how interest rates by the Federal Reserve during the late 1990s, to ease the crash of the dot.com bubble, had begun to pump up the housing bubble by 2003. Lax regulation of non-bank mortgage lenders led to the mountains of risky, sub-prime loans, also encouraged by the Bush administration in 2005, relaxing the rules of the Community Reinvestment Act of 1977. As Fannie Mae and Freddie Mac joined in the sub-prime orgy, Wall Street firms provided the fuel by securitizing all these loans into mortgage-backed securities which they sold on to investors around the world.

As of December 2008, few were willing to bet when housing prices would bottom out, although everyone seemed to agree that the US recession would not end until this bottom was reached. As I have been commenting on Current Issues, Treasury Secretary Paulson's $700 billion TARP program, after many twists and turns, has done little to arrest foreclosures while thwarting FDIC Chair Sheila Bair's pragmatic program of re-negotiating mortgages from expanding. Homeowners still wait for help while banks who have received over $230 billion from US taxpayers are hoarding this cash or acquiring other banks rather than lending it out. Relief, it seems, must wait for the Obama Administration. Meanwhile, the Calvert-Henderson Shelter Indicator reveals that while the great majority of Americans are still well-housed, housing-related problems, particularly affordability, are widespread, and spatially concentrated poverty persists. Inequality is nowhere more evident than in the persistent disparities in shelter across racial and ethnic groups.

Shelter Expert: Patrick A. Simmons

Update on Shelter in the United States

Table 1. Homeownership Rate, 1940-2010

Figure 1. Homeownership Rate, 1940-2010

Table 2. Overcrowding, 1940-2009

Figure 2. Overcrowding, 1940-2009

Table 3. Units Lacking Complete Plumbing Facilities, 1940-2009

Figure 3. Units Lacking Complete Plumbing Facilities, 1940-2009

Table 4. Rental Cost Burdens, All Renters, 1978-2009

Figure 4. Rental Cost Burdens, All Renters, 1978-2009

Figure 5. Rental Cost Burdens, Very Low-Income Renters, 1978-2009

Table 5. Changes in Concentrated Poverty by Region, 100 Largest Metro Areas

Figure 6. High-Poverty Tracts by Location, 1980 and 2000

Figure 7. High-Poverty Tracts by Predominant Race/Ethnicity, 1980 and 2000

Figure 8. African American � White Differences in Housing Conditions

The United States entered the 21st century with a booming housing sector characterized by rapidly expanding homeownership, record home sales, strong house price appreciation and vigorous housing construction. The bursting of this housing bubble led the USA and the world into the recession of 2008. The Case-Schiller Index of house prices continues to fall; foreclosures continue at record rates; and these trends have left many Americans in distress, compounded by massive job losses not fully measured by the current 6.7% unemployment rate which omits millions of workers too discouraged to seek work, which would bring the total upward toward 12%.

The national homeownership rate reached an all-time high of 69.1 percent in 2005, up from 43.6 percent in 1940. It has since fallen back to 67.9 percent (3rd quarter 2008, US Census).

Overcrowded and physically inadequate housing, which were major concerns of housing reformers in the early 20th century are rising again, along with rates of homelessness. In 1940, 20 percent of households experienced overcrowding and 45 percent lived in housing with incomplete plumbing. By the end of the century, fewer than 3 percent of Americans experienced these housing ills. Sadly, it may take several years to regain progress in these conditions.

Affordability problems are particularly acute for homeowners, and even with collapsing prices, mortgage application rates have sagged in spite of federal efforts to lower interest rates. Renters, over 4 million of whom paid more than half of their incomes for rent in 2000, are dealing with even worse problems today. Housing affordability problems among poor households is one factor behind the half to three-quarters of a million people who are homeless at any given moment. Millions of Americans also live in urban neighborhoods plagued by poverty rates of 40 percent or more.

Just as progress has been uneven across the different types of housing problems, so too has it been uneven for different population groups. The mushrooming of suburban 'McMansions' and new ex-urban developments proved unsustainable. Inequality is probably nowhere more evident than in the persistent disparities in housing outcomes across racial and ethnic groups. For example, compared with their white counterparts, African American households are about 35 percent less likely to own their homes and African American renters are about 20 percent more likely to experience severe housing problems. African Americans are more than 20 times more likely than whites to live in extremely poor city neighborhoods. Such differences in housing outcomes contribute to broader patterns of socioeconomic inequality across population groups.

One bizarre effect of the housing bust and resulting recession has been the scape-goating of the Community Reinvestment Act of 1977 as being to blame for sub-prime mortgages. According to Stephen Franco, a security analyst with Walden Asset Management of Boston, this is inaccurate. Rather, 75% of sub-prime mortgages made between 2004 and 2007 were made by independent banks and mortgage brokers that were not federally regulated and did not meet CRA standards.

The US housing sector will stabilize in 2009-2010, but far too many Americans of all demographic groups will still be beset by problems of excessive housing cost burdens, homelessness or living in distressed neighborhoods.