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Woolf: Housing in Vermont

04/18/12 5:55PM By Art Woolf
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(Host) Six years ago, the U.S. housing market collapsed. Commentator and UVM economist Art Woolf sees signs of improvement but worries about the tension between affordability for buyers and sellers who want to protect the value of their homes.

(Woolf) The nation's housing market hit a peak six years ago. Since then prices have fallen by thirty-five percent, and if you live in Miami, Phoenix, or Las Vegas, your house today is worth less than half of what it was in 2006. In Vermont housing prices are lower than they were in the middle of the last decade, but fortunately they're down by only five or ten percent from their peak levels.

That's not great news for homeowners in Vermont, who prefer higher prices to lower, but it is good news for potential home-buyers whose preferences are just the opposite.

Despite the conventional wisdom that housing is becoming more and more out of reach for the typical Vermonter, housing has actually become more affordable over the past six years.

Housing affordability is the combination of housing prices, mortgage interest rates, and the income used to pay for that mortgage. Over the past several years, all of these have been moving to improve housing affordability in Vermont.

Clearly falling housing prices are good for affordability, so what is painful to existing homeowners is beneficial to potential home buyers.

Even more important, mortgage rates have plummeted as the Federal Reserve cut short, then long-term interest rates to try to mitigate the impacts of the financial crisis and recession. As a result, mortgage rates today are lower than they have been at any time since the early 1960s. And as anyone who has a mortgage knows, even small changes in interest rates translate into big changes in monthly payments.

Although family incomes in Vermont have grown only slowly over the past few years, they have grown, and by more than housing prices, leading to improved affordability.

Put all this together and housing is more affordable today than it was at any time during the past decade, or in the 1990s or the 1980s or the 1970s. Indeed, the Census Bureau reports that three-quarters of Vermont's households own their own homes. That's higher than at any time since records have been kept, and gives Vermont one of the highest home-ownership rates in the nation.

A house is the most expensive purchase most of us will ever make and it plays a big role in our standard of living. If housing is expensive, it will be more difficult for people to move here and for businesses to attract talented people. More affordable housing is therefore an asset to the state's economy and our future well being.

Better housing affordability is especially important to first-time home-buyers who have not yet built up any housing equity they can use to offset rising housing prices. First-time home-buyers are predominantly young people under the age of 35, precisely the type of people Vermont needs to attract to keep our economy vibrant.

But there's a constant tension between keeping housing prices low and the desire of home-owners to pressure state and local governments to restrict the development of land through zoning and other means. Those restrictions benefit existing home-owners by reducing the supply of new houses and increasing their price. In the long term they make housing less affordable and Vermont less attractive to workers, families, and businesses.

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