Monday June 13, 10:57 pm ET (USAToday)
Rising home values may be making some homeowners wealthy, but lofty prices are creating a financial strain on many Americans stretching to buy a home.
Roughly one in eight U.S. households now devotes at least half their income to housing costs, says Harvard University's Joint Center for Housing Studies. One in three devotes a third of their income to housing, a tad more than banks prefer. (Related charts: What the housing market means to you)
The median price of a previously owned single-family home rose 7.7% to $184,100 last year, the study said.
"Housing affordability is a chronic problem," says the center's director, Nicolas Retsinas.
The report, The State of the Nation's Housing: 2005, is the latest proof that a rapid escalation in home prices presents opportunities and risks.
On the bullish side, the report stresses that the housing boom - fueled by cheap loans, tight supply in major metro areas and increased demand from immigrants, minorities and prosperous baby boomers - will continue in 2005.
Citing those factors, residential real estate could fare well the next 10 years, the report says.
But it also chronicles a laundry list of data that suggest some homeowners may be making bigger trade-offs than they realize.
The home-buying boom, the report says, has been spurred in large part by creative financing, such as interest-only and adjustable-rate mortgages that offer lower monthly payments in the early years of the loan.
"Some buyers are taking more risk than they think," says Tony Ogorek, principal of Ogorek Capital Management.
They could get burned if the economy worsens or interest rates rise sharply.
Other signs that home buyers may be breaking the budget:
Home prices outpacing paychecks. The number of metro areas where homeowners are paying at least four times their income for a home has more than tripled to 33 from 10 in the past five years.
Tiny down payments in vogue. In 1990, only 3% of conventional loans had down payments of 5% or less, vs. roughly 17% of loans today.
Investor purchases on rise. From 1998 to 2003, the number of loans made to investors who didn't plan to live in the house climbed to 11% from 7%.
Longer commutes. In search of cheaper digs, the number of people who commute an hour or more to work rose 3.1 million in the 1990s.
"For owners already in the real estate market it has been a great ride," says Richard DeKaser, chief economist at National City Corp. "But ... (non-owners) are increasingly being shut out or resorting to unusual means to get in."
Rising home values may be making some homeowners wealthy, but lofty prices are creating a financial strain on many Americans stretching to buy a home.
Roughly one in eight U.S. households now devotes at least half their income to housing costs, says Harvard University's Joint Center for Housing Studies. One in three devotes a third of their income to housing, a tad more than banks prefer. (Related charts: What the housing market means to you)
The median price of a previously owned single-family home rose 7.7% to $184,100 last year, the study said.
"Housing affordability is a chronic problem," says the center's director, Nicolas Retsinas.
The report, The State of the Nation's Housing: 2005, is the latest proof that a rapid escalation in home prices presents opportunities and risks.
On the bullish side, the report stresses that the housing boom - fueled by cheap loans, tight supply in major metro areas and increased demand from immigrants, minorities and prosperous baby boomers - will continue in 2005.
Citing those factors, residential real estate could fare well the next 10 years, the report says.
But it also chronicles a laundry list of data that suggest some homeowners may be making bigger trade-offs than they realize.
The home-buying boom, the report says, has been spurred in large part by creative financing, such as interest-only and adjustable-rate mortgages that offer lower monthly payments in the early years of the loan.
"Some buyers are taking more risk than they think," says Tony Ogorek, principal of Ogorek Capital Management.
They could get burned if the economy worsens or interest rates rise sharply.
Other signs that home buyers may be breaking the budget:
Home prices outpacing paychecks. The number of metro areas where homeowners are paying at least four times their income for a home has more than tripled to 33 from 10 in the past five years.
Tiny down payments in vogue. In 1990, only 3% of conventional loans had down payments of 5% or less, vs. roughly 17% of loans today.
Investor purchases on rise. From 1998 to 2003, the number of loans made to investors who didn't plan to live in the house climbed to 11% from 7%.
Longer commutes. In search of cheaper digs, the number of people who commute an hour or more to work rose 3.1 million in the 1990s.
"For owners already in the real estate market it has been a great ride," says Richard DeKaser, chief economist at National City Corp. "But ... (non-owners) are increasingly being shut out or resorting to unusual means to get in."
