Though Home Prices Appear to Bottom Out, Possibility of Long-Term Slump in Housing Remains

For Immediate Release

Contact: 

Alan Barber, 202-293-5380 x115 (CEPR); Taylor Materio, 202-662-1530 x227 (NLIHC)

Though Home Prices Appear to Bottom Out, Possibility of Long-Term Slump in Housing Remains

As many markets approach trend levels, prospects for home equity in current bubble-inflated markets remains slim.

WASHINGTON - Many recent accounts of the housing market point to stabilization of
prices and slight upticks in sales as turning points in the nation's
housing crisis. However, a report released today by CEPR and the National Low Income Housing Coalition
(NLIHC) shows that in many current bubble-inflated markets,
homeownership may remain a costly and risky proposition for some time
to come.

The study, "Hitting Bottom? An Updated Analysis of Rents and the Price of Housing in 100 Metropolitan Areas,"
compares home prices to annual rents for the largest MSAs in the
nation.  The study extends the methodology from 2 earlier reports,  "Ownership, Rental Costs and the Prospects of Building Home Equity: A Comparison of 100 Metropolitan Areas," and "The Cost of Maintaining Home Ownership in the Current Crisis: Comparisons in 20 Cities," to give an up-to-date portrayal of where the housing market is today and determine if we have hit bottom yet.

The new analysis
demonstrates that the ratio of house prices to annual rents are closer
to an equilibrium ratio of 15 to 1 than they have been at any point in
the last 2 years. Due to the strong likelihood of a jobless recovery
and declining growth, however, the demand for housing will continue to
suffer.

"The good news here is
that the bottom of the housing market may be in sight," said Danilo
Pelletiere, NLIHC Research Director and a co-author of the report, "but
we can't be complacent and we shouldn't waste the opportunity to lock
in housing affordability by funding the National housing Trust Fund."

Current homeowners with a mortgage in many communities will continue to
remain underwater for sometime to come - almost half of mortgage
holder's by recession's end according to Deutsche Bank - increasing the
likelihood that under current policies, the rash of foreclosures in
bubble markets will continue for some time.

"In communities where foreclosure remains a problem, homeowners should
be given the opportunity to remain in their homes as renters paying the
fair market rent," said Dean Baker, Co-Director of CEPR and an author
of the study. "This 'right to rent' would provide homeowners facing
foreclosure in hard-hit areas an important degree of housing security
and stability."

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The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.

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