Homes becoming too expensive for working families

Families with children most vulnerable to rising home prices

Home ownership in the United States recently reached a record level of just under 70%. The Bush administration has touted this statistic as proof that their economic policies are working, but the number has been steadily rising since the 1950’s, regardless of who was in the White House. Still, it is refreshing to know that nearly three quarters of all Americans can afford their own home.

Unfortunately, the percentage of families with children that have their own house has been declining in recent years and now stands at about the same place it did in the late 1970’s. The reason given for this is that the price of housing has increased far faster than the increase in salaries.

The mortgage industry has certainly show its flexibility in creating new lending products to deal with the many different types of people who apply for loans. When interest rates rose, more adjustable rate mortgages became available. And as housing prices have risen more options have become available to help buyers work around the pricing. These types of loans have included such choices as low or no-down payment loans, Option ARM loans and interest-only loans. These choices have made buying houses priced at more than the median $216,000 American house easier for buyers.

But workers with children continue to fall behind as housing prices continue to rise, particularly in the Western United States. The median price of a home in the Los Angeles area now exceeds $500,000; this price is far out of reach for all but a handful of families with small children.  Equally hurt are those who work in traditionally low-paying professional jobs, such as firemen, policemen or teachers. 

The increasing number of working families that cannot afford their own homes is adding to the pressure on the housing market, which was growing explosively during the first five years of the decade. It seems to be slowing now, partly because of rising interest rates, and partly because the number of people who can afford homes that increase in value at a rate of 20% per year seems to have peaked. All the buyers who can afford such houses already have them, and all that remains are the young families who cannot.

This dichotomy in home ownership is slowly leading to a situation where many communities are starting to consist only of older, more affluent owners, as the younger people with families cannot afford to move in. This trend started twenty years ago in resort communities such as Vail or Aspen, Colorado. But now it is starting to be seen in other communities, as well. The gas station and grocery store workers in many cities can no longer afford to live there or buy homes there.

In all likelihood, the housing market will adjust. Prices seem to have stabilized and are even starting to fall in some markets. Despite the optimism of investors during the last five years, housing prices cannot go up forever. With any luck, prices will soon equalize so that working families can again afford a place to live.