This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Why Homes Aren't Affordable Yet

NEW YORK ( TheStreet) -- While the Obama administration's "Making Home Affordable" program has been firing its gun at the housing crisis for over a year, it hasn't yet found the magic bullet.

Need a lower rate? The government has helped push the typical mortgage rate down to 4.32% .

Need the principal cut because you're underwater on the loan? The government will share losses with banks that agree to do so.

Have a second lien in the way ? The government is incentivizing banks to work those out, too.

Are you in a state with high unemployment? You'll get extra help .

Do monthly payments still not make sense for you financially? Not to worry. The government is also nudging banks (with dollars) to use "foreclosure alternatives" like short sales or deed-in-lieu transactions as a last-ditch effort to avoid foreclosure.

"Making Home Affordable" seems to have everything covered. But the program has had lackluster results so far because the housing crisis is no longer contained to the housing market; its success now relies on job growth.

By measures of price and borrowing cost, homes are more "affordable" now than they've ever been - at least for new borrowers. Home prices have fallen at double-digit levels from 2007 highs in most states, and mortgage rates are at historic lows.

Yet existing homeowners have been burned by those same price declines. In Nevada, the vast majority of homeowners are underwater - meaning they owe more, sometimes a lot more, than homes are worth. In Arizona and Florida, it's split about 50-50.

In "underwater" cases, making mortgage payments simply doesn't make sense since homeowners have no equity; workouts simply don't make sense because banks would need to eat big losses on principal cuts. In other cases, borrowers simply don't have the income to afford anything. Elevated unemployment levels have made mortgage payments rise as a percentage of income, even as "affordability" metrics like price and interest rate have fallen to new lows.

The National Association of Realtors' housing-affordability index remained relatively high at 161.8 in July, the payment as a percentage of income rose to 15.5%. Any index level above 100 means that a family earning the median national income has more than enough to pay for a median-priced home. At the top of the market in 2007, payments were nearly 22% of income; at a low in January, the level dropped down to 14%.

The 10 "hardest hit" states are facing both quandaries at once.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,817.90 +7.84 0.04%
S&P 500 2,069.41 +5.91 0.29%
NASDAQ 4,754.8920 +41.9220 0.89%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs