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Affordability Problems Escalating Even As Housing Market Cools |
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Joint Center for Housing Studies. With interest rates rising and speculative demand cooling, the housing boom is coming under pressure, finds this year's State of the Nation's Housing report. Major house price declines seldom occur in the absence of severe overbuilding, major job loss, or a combination of heavy overbuilding and modest job loss. Even with higher interest rates and home prices crimping affordability, the lure of house price appreciation continues to draw homebuyers to the market. While the national homeownership rate edged down a tenth of a percent in 2005, it increased in the West and Northeast where house price growth was the strongest. In fact, about 1 million homeowners were added nationally last year. Mortgage innovations such as low-downpayment, hybrid-adjustable, and interest-only loans helped blunt the impact of higher home prices and interest rates. Similarly, most interest-only loans extend for at least five years, leaving ample time to move, refinance, or incomes to grow before principal payments start coming due. New household projections incorporating higher but more realistic immigrant assumptions suggest household growth will accelerate to 14.6 million over the next ten years from 12.6 million over the last ten. "Slow growth in domestic discretionary spending at the federal level and the reluctance of state and local governments to relieve intense barriers to the production of more affordable housing make the road ahead difficult.
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