By Mark Huffman

June 15, 2010
In the middle of the last decade, Americans' net worth was surging, thanks to escalating home prices. But those days are over, and a new study suggests they won't be back anytime soon.

In its "State of the Nation's Housing" study, researchers at Harvard's Joint Center for Housing Studies point to housing affordability as one of the biggest obstacles to a real estate rebound. That might come as a shock to homeowners who have seen the value of their homes plunge 20 percent or more in some markets.

But even with falling prices, many consumers are finding a home purchase is still beyond their reach, either because they can't qualify for a loan or lack the income to buy a house, even at a depressed price.

Even as the worst housing market correction in more than 60 years appeared to turn a corner in 2009, the fallout from sharply lower home prices and high unemployment continued.

"By year's end, about one in seven homeowners owed more on their mortgages than their homes were worth, seriously delinquent loans were at record highs, and foreclosures exceeded two million," the authors write. "Meanwhile, the share of households spending more than half their incomes on housing was poised to reach new heights as incomes slid. The strength of job growth is now key to how quickly loan distress subsides and how fully housing markets recover."

But unemployment remains stubbornly high. Even the latest job creation numbers show the lion's share of new employment is temporary slots filled by census workers.

Tax credit

Improved affordability for first-time homebuyers and a federal first-time buyer tax credit were vital to an early housing rebound, the report found. Indeed, even though tighter lending standards sapped some strength from the market, the increase in sales to first-time buyers drove all the gains in existing home sales in 2009.

As a result of lower home prices and interest rates, mortgage payments on a median-priced home (assuming a 90 percent loan-to-value ratio) dropped below 20 percent of median household income -- the lowest level on records dating back to 1971.

The study found conflicting evidence about the direction of real estate values. After sliding sharply for several months, the Federal Housing Finance Agency (FHFA) purchase price index turned higher in February and March, while the S&P;/Case-Shiller index showed steady declines from September 2008 through the end of March 2010.

"Clear evidence of a home price recovery therefore had yet to emerge," the authors said.

Until more Americans are working again and incomes are rising, home prices will stay stagnant or go lower still, the study concludes.