Continued Housing Recovery Depends More on Job Growth than Low Mortgage Rates
July 22, 2010
High unemployment continues to drag down the housing market, and job growth is the key to turning it around, says a new State of the Nation's Housing by Harvard University's Joint Center for Housing Studies.
"Even as the worst housing market correction in more than 60 years appeared to turn a corner in 2009, the fallout from sharply lower home prices and high unemployment continued," the report says. "By year's end about one in seven homeowners owed more on their mortgages than their homes were worth, seriously delinquent loans were at record highs, and foreclosures exceeded 2 million. Meanwhile, the share of households spending more than half their incomes on housing was poised to reach new heights."
With 8 million jobs lost since 2007, it will take years to catch up, and unemployment will remain high as discouraged workers return to the job market.
Low mortgage rates, along with depressed home prices and the homebuyer tax credit drove home sale gains last year. Mortgage payments on a median-priced home, assuming a 90% loan-to-value ratio, dropped under 20% of median household income--the lowest level on records dating back almost 40 years, according to the report.
Mortgage Rates' Impact
Yet mortgage rates, "barring an unexpected shock," probably won't be a major factor in the recovery, the report says.
Low mortgage rates don't help the more than 11 million homeowners who were left underwater on their mortgages by falling home prices.
"While growth in stock wealth has already started to pick up, housing wealth will take a slower path to recovery," the report says. "Mortgage debt has never been higher relative to home equity. After an $8.2 trillion plunge in housing wealth since the end of 2005, mortgage debt entered 2010 at 163% of home equity.
