Housing Prices Up, but Not for Low-Income Areas
Why? Because in low-income areas, most houses still have negative equity — their mortgages are worth more than the value of the property. This is often called having a mortgage that is “underwater” or “upside down.”
To make matters worse, the poorest 20% of Americans spend upwards of 40% of their income on housing. The standard recommendation is that only about 30% of income should be spent on housing.
Without the steady increase in real estate prices that most people are used to, low-income homeowners have little incentive to avoid foreclosure. Instead, it is in their interest to find a better job somewhere else and walk away from these properties. This would potentially cause more blight and lower home values further.
The solution? The main recommendation that experts make is to allow more principal reductions in loan modifications, preferably reductions that reduce the balance of the loan to the market value or lower.
“If we don’t act,” says the editorial, “we will continue to build a generation of low-income residents who are hostage to their mortgages, unable to build equity, unable to participate in the American dream.”
Original article here: Where the Housing Crisis Continues (NYTimes)