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Hitting Bottom? An Updated Analysis of Rents and the Price of Housing in 100 Metropolitan Areas

Hitting Bottom? An Updated Analysis of Rents and the Price of Housing in 100 Metropolitan Areas

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It has been two years since the housing bubble began to deflate. In this time, home prices in major metropolitan areas have fallen more than 32.3 percent and the woes in the housing sector have spread to the broader economy. Where is the housing market today? Have we hit bottom?

This paper finds that while most of the nation’s metropolitan housing bubbles have deflated and many markets never had one to contend with, there is the possibility of a persistent housing slump in the years ahead. An appropriate response to this situation involves 1) stimulating demand for housing by acting to lower unemployment and raise wages, 2) recognizing a leading role for rental housing in federal foreclosure mitigation and neighborhood stabilization policy, including allowing foreclosed homeowners to remain in their homes as renters (Right to Rent), and 3) adequately funding the National Housing Trust Fund.
It has been two years since the housing bubble began to deflate. In this time, home prices in major metropolitan areas have fallen more than 32.3 percent and the woes in the housing sector have spread to the broader economy. Where is the housing market today? Have we hit bottom?

This paper finds that while most of the nation’s metropolitan housing bubbles have deflated and many markets never had one to contend with, there is the possibility of a persistent housing slump in the years ahead. An appropriate response to this situation involves 1) stimulating demand for housing by acting to lower unemployment and raise wages, 2) recognizing a leading role for rental housing in federal foreclosure mitigation and neighborhood stabilization policy, including allowing foreclosed homeowners to remain in their homes as renters (Right to Rent), and 3) adequately funding the National Housing Trust Fund.

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Published by: Center for Economic and Policy Research on Aug 06, 2009
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01/26/2013

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Hitting Bottom?
An Updated Analysis of Rents and the Price of Housingin 100 Metropolitan Areas
Danilo Pelletiere, Hye Jin Rho, and Dean Baker
August 2009
Center for Economic and Policy Research
1611 Connecticut Avenue, NW, Suite 400Washington, D.C. 20009202-293-5380www.cepr.net
 National Low Income Housing Coalition
727 15th Street, NW, 6th FloorWashington, D.C. 20005202-662-1530www.nlihc.org
 
 
CEPR Hitting Bottom?
i
 
Contents
Executive Summary...........................................................................................................................................1
 
Introduction........................................................................................................................................................2
 
Ownership and Rental Costs in 2009.............................................................................................................2
 
 The Prospects for Accumulating Equity........................................................................................................3
 
 Accounting for Equity in a Changing Economy...........................................................................................5
 
Recent Rental Trends in 40 Cities...................................................................................................................5
 
Conclusion..........................................................................................................................................................7
 
 Appendix.............................................................................................................................................................9
 
 About the Authors
Danilo Pelletiere is Research Director at the National Low Income Housing Coalition, and DeanBaker is Co-Director and Hye Jin Rho is a Research Assistant at the Center for Economic andPolicy Research, both located in Washington, D.C.
 
CEPR Hitting Bottom?
1
 
Executive Summary
It has been two years since the housing bubble began to deflate. In this time, home prices in majormetropolitan areas have fallen more than 32.3 percent
1
and the woes in the housing sector havespread to the broader economy. Where is the housing market today? Have we hit bottom?By comparing home prices to rents, as suggested by basic economic theory, this paper finds that while most of the nation’s metropolitan housing bubbles have deflated and many markets never hadone to contend with, there is the possibility of a persistent housing slump in the years ahead. Anappropriate response to this problem involves:1)
 
Stimulating the fundamental demand for housing through acting to lower unemploymentand raise wages;2)
 
Recognizing a leading role for rental housing in federal foreclosure mitigation andneighborhood stabilization policy, including allowing foreclosed homeowners to remain intheir homes as renters; and3)
 
 Adequately funding the National Housing Trust Fund to capitalize on current low prices,ensure long-term affordability in a recovery, absorb excess housing, and stimulateemployment.
1
The data is attained from the May 2009 release of the S&P/Case-Shiller 20-City Composite Index for the period fromthe peak in the second quarter of 2006 to May 2009.

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