2010 Housing Affordability
Even though home sale prices have come down two years in a row (after stagnating in 2006 and 2007), housing cost burdens remain high. The incidence of foreclosures increased in the last year, and looks like it will likely continue its upward trajectory in 2010 and 2011. The number of homes sold this year will likely be less than half what it was in the first half of the decade.
Why is this important?
From one perspective, declining home sale prices on Long Island are welcome news after a very hot housing market for the better part of a decade. Yet the sudden drop in home values prevents many home owners from selling their homes; with increasing frequency, it has also forces many homeowners into foreclosure.
Foreclosure is a tragic event for any household, not only disrupting lives, but also often leading to damaged credit, bankruptcy and sometimes even homelessness. Empty, foreclosed homes also negatively affect their communities, and can depress the value of nearby homes.
In the early stages of the national foreclosure crisis, it was over-leveraged borrowers who succumbed to foreclosure. Today it appears that a growing number of foreclosures are happening to borrowers with good credit who have lost their jobs in the economic recession. Thus, foreclosure is affecting a greater range of homes in a greater range of communities.
How are we doing?
Following more than a decade of rapid growth, sales prices on Long Island have declined for two years in a row. Just as significantly, the number of homes sold this year was less than one half what it had been earlier this decade, affecting Long Island homeowners’ ability to upsize, downsize or move out of the region (and preventing others from moving into Long Island).
Foreclosures
In the first quarter of 2009, one in eight homes sold on Long Island were foreclosure sales (15% in Nassau County, 11% in Suffolk). The number of foreclosure sales has been decreasing since, but that decrease is most likely just temporary. An August 2008 law, meant to reduce foreclosures by encouraging lenders to renegotiate the terms of loans, caused a temporary dip – a 90-day delay, really – in the number of lis pendens filed at the end of 2008. Lis pendens, the first step of the year-long foreclosure process, quickly rebounded in early 2009, and so a surge in foreclosures can likely be expected in late 2010.
Notably, in the last two years when the value of homes has declined significantly, the median sale price of foreclosed homes has increased. This indicates that foreclosure is increasingly affecting a wider range of households, not only sub-prime borrowers who got in over their heads.
In Nassau County today the median sale price of foreclosed homes is the same as that of standard homes.
Home sales prices
After two years of stagnation in 2006-07, home sale prices have decreased dramatically in the last two years. The median sales price of a home in the first half of 2009 was $372,000, down from $410,000 last year and a peak of $445,000 in 2007.
Home sale prices are now at approximately 2004 levels.
Because of the difficulty of obtaining financing, and because people are not able to sell their homes for the price they need to pay off their existing mortgage, the number of homes sold on Long Island has dropped significantly in recent years. In 2009, the number of homes sold will likely be less than half of how many were sold in the first half of the decade. This means that many homeowners are unable to upgrade, downsize or move.
Rents
Rental units, whether single-family homes rented by the owner or apartments in multi-family buildings, constitute less than 1 in 5 homes on Long Island. The share of units that are rented in the New York region excluding New York City is almost twice Long Island’s share.
Rents on Long Island have been stable for three years as a result of the overall cooling off of the real estate market. Rents are still expensive, however, with more than 4 in 10 rentals costing more than $1,500 a month (only 12% of rentals were in that price range in 2000).
The burden of high housing costs
More than a third of all Long Islanders are burdened with high housing costs – that is, they spend more than 35% of their income on their housing. One in five residents, in fact, spend more than half of their income on housing. That said, thanks to lower sales prices, lower rents and higher household incomes for the last two years, the share of households with high housing cost burdens has been stable since 2006. It is still significantly higher, however, than it was earlier in the decade.
Home values compared to household incomes
After years of escalation, home values on Long Island have remained stable two years in a row. The median value of a home, as measured in the Census, was $469,000 in 2008.
Although median household income increased in 2008, incomes are sometimes lagging indicators in a recession. In other words, as job losses and wage declines in the country and on Long Island catch up with losses in the financial and housing markets, declines in household incomes may not appear until 2009.
Stabilized home values, along with rising household incomes, have improved the ratio of home value to income, but it is still much higher than it was earlier in the decade, and still more than twice the conventional rule of thumb, which is that a household’s house value should be 2.5 times its income.
What’s getting built?
The number of building permits issued for new housing increased slightly, but continues to be the lowest in the region.
Much of Long Island was built up following World War II and both the shrinking availability of land for new residential subdivisions and the weakening housing market appear to have contributed to the decline.
Other parts of the region have been growing at a much more rapid pace than Long Island. In Northern and Central New Jersey, 29 building permits per 1,000 residents were issued in the last nine years. That number was 26 in the Hudson Valley, 23 in Southwest Connecticut, and only 15 on Long Island.
Long Island has also been producing significantly lower shares of multi-family units as it continued on its downward trajectory of building multi-family housing. About 22% of all building permits issued on Long Island since 2000 has been for multi-family units, compared with 37% in the region excluding New York City.
Many of the problems associated with housing on Long Island—including its high cost and lack of rental units—can be traced to low rates of housing production, and particularly low rates of multi-family units production..
