ForeclosingNOW.com
Median home prices in the US have nearly doubled over the past ten years, from $109,000 in 1995 to $206,000 in 2005, outpacing the growth of the consumer price index by over 33 percent during this period. As median-priced homes have moved out of reach of median-income earners, homebuyers have sought to use riskier mortgage instruments to bridge the gap.
Despite the increase in prices, however, the past 15 years have seen a five percent increase in the home ownership rate. Considering that the median wage has been stagnant since 1999 and incomes of low-paid workers have been declining for decades, it would follow that this change has come about through increasing indebtedness.
Indeed, overall household indebtedness climbed drastically during the housing bubble, just as mortgage debt constituted a greater section of overall household debt. According to figures from the Federal Reserve, outstanding household debt as a percentage of disposable personal income grew from 88 percent in 1994 to 117 percent in 2004. The Washington Post reported that this statistic reached 126 percent in 2005a 45 percent increase in the course of 11 years. According to a 2006 report in Harpers Magazine, almost half of first-time home-buyers paid no money down on their mortgages in 2005.
Mortgage debt has been the main driving force of the overall growth in debt since 2001, and increasingly so during the latter part of the housing bubble. A 2006 report by the Woodstock Institute observed, In 2000, net increases in nonfarm mortgage debt made up 44 percent of the increase in total net liabilities. The same percentage at the end of the third quarter of 2005 was 79 percent.
Moreover, the past quarter-century has seen consistent decreases in homeowners equity as a percentage of the real estate in their name. In 1979 families owned an average of 67.3 percent of their homes; this figure had dropped to 56.7 percent by 2004. The change occurred despite the recent rise in home prices, which might have allowed homeowners to translate the greater value of their properties into greater equity by refinancing. In fact, the reverse occurred; a 2004 report by the Federal Reserve found that almost half of homeowners who refinanced actually reduced the amount of equity in their homes by converting it into cash. This resulted in longer-term loans for 80 percent of those who refinanced, and higher monthly payments for 40 percent.
The overall increase of mortgage debt, however, has not been spread evenly within the American population. A 2004 report by the Century Foundation found that low-income homebuyers had experienced an increase in their mortgage burden far out of proportion to their numbers. The report found a 191 percent increase in mortgage debt in the lowest income group, in contrast to 95 percent in the median income percentile and 39 percent in the highest.
The Century Foundation report also notes that a family with two earners today actually has less discretionary income, after fixed costs like medical insurance and mortgage payments are accounted for, than did a family with one breadwinner in the 1970s. (See Life and Debt: Why American Families are Borrowing to the Hilt)
Moreover, a 2004 study by the Federal Reserve Board found that more than a quarter of low-income households spend forty percent or more of their earnings repaying debt.
These long-term changes have made themselves felt in the foreclosure statistics. According to data from the Census Bureau, home foreclosures increased by 250 percent from 1980, when there were 114,000 foreclosures, to 2001, when there were 555,000. This period also witnessed a four-fold increase in personal bankruptcies.