Rock bottom interest rates and falling prices have inspired hundreds of headlines saying housing has never been more affordable. But preliminary results of a new study on post-bust housing affordability by an analyst with the Federal Reserve Bank of Boston suggest affordability may be less than it seems.
Robert Clifford, a policy analyst at the Boston Fed, presented results from an as-yet-unpublished study to a workforce housing conference sponsored by the Massachusetts Association of Realtors and the National Housing Conference.
"The perceived positive of the housing bust is that affordability has improved to record levels," Clifford said in his presentation. "[The media] has reported, looking at some simple measures, that we’re near a 40-year high in housing affordability. [But] looking at more in-depth data, we see that we’re really only back to the levels of the early 2000s, and it depends on the real estate market, too."
Housing prices in Massachusetts rose roughly 45 percent from 1995 to 2005 – but have only fallen about 20 percent in the subsequent bust, Clifford said. That means that for a median-income household to afford a median-income home, prices would need to decline another 14 percent in Massachusetts.
As a result, "affordability is still somewhat out of reach for the median income household," Clifford suggested.
Economists generally consider housing in an area to be "affordable" if housing costs consume 30 percent or less of a household’s income.
Regarding rental affordability, Clifford said his research suggests that while costs have become somewhat more affordable in the past few years for median income households, this may not be the case for lower-income households. Further, since more people are now entering the rental market and putting upward pressure on rents, "you would expect affordability to stay stagnant or increase over time."
Almost a third of median-income households in the commonwealth are burdened by high housing costs, Clifford suggested, up from 24 percent 10 years ago and considerably higher than the national rate of 25 percent. More than 75 percent of low-income households experience housing-cost burdens.
"There’s a large disparity between renters and owners in the New England region, and it’s particularly acute in Massachusetts," Clifford said, with homeowners here much more likely to spend more than 30 percent of their income on housing.
Such statistics mean that even though housing affordability has improved somewhat during the past few years, "there’s very few households in position to take advantage."
