NEW YORK — One night last spring, David Hall returned home to his studio apartment outside Boston to learn that his monthly rent had spiked from $725 to $995.
It would be much cheaper for the maintenance manager to buy a nearby starter house than to stay put. But his mortgage broker told him that while his credit score was good, it was not high enough to meet banks' tough standards, he said.
"I know if I walk into a bank, they are just going to laugh at me," Hall says. "So I'm stuck."
He is not alone.
Five years after the housing bubble burst, the United States is in the midst of a housing affordability crisis. Home prices have fallen a third from their peaks, but many Americans cannot benefit because they cannot get a mortgage.
With credit tight, many consumers have no choice but to rent. Others who can afford to buy are also renting, because they view real estate as a lousy investment. With this increased demand, rents in some cities have jumped by double-digit percentage rates.
In the 12 months ended in May, rents rose 14 per cent in San Francisco and 11 per cent in San Jose, California, according to real estate data provider Zillow. Last year in Minneapolis, they spiked 11 per cent even as home values sank 8 per cent.
People with lower incomes have long struggled to find affordable housing, but many in the middle class are now hurting, too.
Most personal finance experts recommend allocating no more of 30 per cent of family income to housing, but nearly 40 per cent of Americans are paying more than a third, according to the US Census Bureau's American Community Survey.
In New York City, one-third of households are spending more than half their pay on rent.
"We have falling incomes, rising rents and nothing but substantial upward pressure on those rents," says Chris Herbert, Director of Harvard University's Joint Center for Housing Studies. "And nothing in the cards suggests it will turn around anytime soon."
Today's housing market is a buyer's paradise. It is now cheaper to buy a home than it is to rent in virtually every major city in the United States, according to John Burns Real Estate Consulting.
But for many in the renter class, buying even a modest home is impossible because financing is so hard to secure.
Lending for home purchases hit a 12-year low of $404 billion last year, down from $1.4 trillion in 2006, according to trade publication Inside Mortgage Finance. That means mortgage credit is tighter than it was even before the housing boom.
This year, lending is expected to drop even more, according to Inside Mortgage Finance. A recent Morgan Stanley research report states that the average credit score is 762 for a consumer securing a mortgage backed by government-sponsored enterprises like Fannie Mae. But 65 per cent of Americans have scores below 750.
In other words, a disproportionate number of mortgages are going to people with unusually good credit. A perfect score is 850, and anything below 660 is considered subprime.
"Basically, access to credit for borrowers with less than spotless credit is severely limited," the Morgan Stanley report states. "A good chunk" of US households are "cut off from mortgage credit on this count alone."
For people who can get mortgages, rates are at their lowest levels in several generations. Add that to the cheap home prices, and houses are at their most affordable since at least 1970, when the National Association of Realtors began tracking this metric. — Reuters
