From 1971 through mid-2007, the nominal national sales price of housing grew almost eightfold. Controlling for inflation, this represented a near doubling in the relative price of housing. The retrenchment in prices that began in 2007 has so far remained small compared to the earlier increase. ; As house prices climbed, many people complained that housing had become unaffordable to middle-income Americans. As early as 1998, newspapers warned that homeownership was becoming a heavy financial burden. As sales price rises accelerated in 2003 and crested in 2006, homeownership was increasingly portrayed as the “unattainable” American dream. ; Notwithstanding such concerns, homeownership actually rose strongly beginning in the mid-1990s and in 2004 attained its highest level ever. The more recent surge in foreclosures suggests many households indeed purchased homes they could not afford. Still, this does not necessarily imply that housing in general has become unaffordable to middle-income households. Instead, it may be that many defaults resulted from specific households purchasing specific houses whose location, size, and other attributes made their sales price too high relative to the purchasers’ financial resources. ; Rappaport seeks to answer the question of whether homeownership has indeed become less affordable to middle-income Americans. He also discusses some reasons why perceptions of affordability may have decreased. past.
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Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.
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