Real Estate Outlook: Poverty Rates Rising

Federal Reserve Chairman Ben Bernanke spoke earlier this month about our economic outlook. He noted that the financial crisis we endured through 2008 and 2009 was far worse than anything we've seen since the Great Depression.

Notably, he said, it's housing that has our attention. A significant factor of recovery for the last half a century has been housing, but today this sector is plagued by "an overhang of distressed and foreclosed properties, tight credit conditions for builders and potential homebuyers, and ongoing concerns by both potential borrowers and lenders about continued house price declines." This has kept the rate of new construction at less that one-third of its pre-crisis peak.

Bernanke also noted that "even as tight credit for builders and potential homebuyers has been one of the factors restraining the housing recovery, the weak housing market has in turn adversely affected financial markets and the flow of credit. For example, the sharp declines in house prices in some areas have left many homeowners "underwater" on their mortgages, creating financial hardship for households and, through their effects on rates of mortgage delinquency and default, stress for financial institutions as well."

One striking aspect of the recovery is the unusual weakness in household spending," Bernanke noted. "After contracting very sharply during the recession, consumer spending expanded moderately through 2010, only to decelerate in the first half of 2011."

High levels of unemployment along with lagging wage growth have spurred consumers to save more and borrow less. Consumers are cautious and pessimistic.

Yet, while the recovery from the recession is not what many had hoped for, Bernanke does not expect long-run growth potential to be materially dampened by the crisis if action is take to secure a positive outcome.

It's no wonder, however, that consumers aren't spending. According to the U.S. Census Bureau, the number of American living below the poverty line was the highest it has been in 52 years. 46.2 million Americans now live under the poverty line, defined as income of less than $22,314 for a family of four. This is the fourth consecutive annual increase in the poverty rate.

Housing may be at its highest levels of affordability in years, but it is still well out of reach for this portion of Americans, or a staggering 15.1 percent of the population. The National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) indicates that in today's market "72.6 percent of all new and existing homes sold in the second quarter of the year were affordable to families earning the national median income of $64,200."

"This is truly a lost decade," said Lawrence Katz, economics professor at Harvard. "We think of America as a place where every generation is doing better, but we're looking at a period when the median family is in worse shape than it was in the late 1990s."

The middle class is feeling the pressure as well, with median household incomes falling last year to levels last seen in 1997. Some analysts think this latest Census Bureau report may put added pressure on Congress to pass Obama's recent jobs bill, since joblessness was the major factor in pushing families into poverty.

Written by Carla Hill for www.RealtyTimes.com Copyright © 2011 Realty Times All Rights Reserved.