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Housing Affordability Rises, But Mortgage Access Falls

by Chicago Agent

Housing is cheaper than at any point in the last 35 years, but mortgages are harder to get than at any point in the last 15 years, according to new research from Zillow.com, as reported by the Wall Street Journal.

Emily Trinks, an economist at Zillow, constructed two different indexes—one that measures housing affordability and one that looks at mortgage accessibility.

The first index looks at mortgage payments as a percentage of monthly income, using a 30-year fixed-rate mortgage with a 20 percent down payment. By 2005, housing had hit its most unaffordable level in more than two decades; then, mortgage payments accounted for more than 30 percent of monthly income. By contrast, monthly payments on mortgages taken out last year represented less than 20 percent of monthly income.

Housing affordability plunged during the first half of the last decade, yet mortgage accessibility increased dramatically. The boom began when the Federal Reserve lowered interest rates in 2001, and continued as originators began pushing more exotic and risky loan products in 2004 and 2005.

“Actual affordability was likely lower for people who benefited from the huge increase in accessibility,” Trinks wrote. But borrowers were nonetheless lured by lower down payments and banks that extended loans to borrowers with damaged credit. This explains why homeownership rates continued to rise, even as housing became more expensive.

Without the increased market presence of the Federal Housing Administration, mortgage accessibility would be at its lowest levels since 1975, according to Trinks’ index.

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