Low rates hiding affordable housing shortage

Jennifer Shubinski

Friday, Jan. 31, 2003 | 10:54 a.m.

Low mortgage interest rates are masking an underlying problem of affordable housing in Nevada and across the nation while at the same time driving a remarkable expansion in the housing industry, mortgage and real estate leaders said Thursday.

A 6 percent gain in home prices in 2002 over 2001 nationwide is helping fuel the affordable housing shortage, said Rob Levin, vice president of the Washington D.C.-based Fannie Mae Foundation.

The Fannie Mae Foundation, a private nonprofit organization, works to create affordable home ownership and housing opportunities through partnerships and initiatives across the United States. The foundation is separate from the mortgage lending company Fannie Mae, which is traded on the New York Stock Exchange.

Home prices increased at a faster rate in Clark County. In 2002, new home prices increased 7.9 percent over 2001, pushing the median price of a new home to $186,827, according to research firm Homebuilders Research Inc. Resale homes in Clark County saw a 7.7 percent increase over 2001.

"There are shortages of affordable housing because prices are going up," Levin said. "It is a huge issue all over the country."

Levin was in Las Vegas Thursday to attend a roundtable discussion with Nevada's mortgage and real estate leaders. Reps. Jim Gibbons and Jon Porter, both R-Nev., also attended the meeting.

Sandy Lindsay, president of the Nevada Mortgage Bankers Association and senior loan officer with First Horizon Home Loans in Reno, said as Indian gaming in Northern California becomes more of a force, it will begin to affect Northern Nevada's housing industry.

He said if people begin to pass up Northern Nevada to gamble at Indian reservations, the tourism industry and the economy will decline.

"We need affordable housing and we support it," he said.

The issue of affordable housing in Nevada needs to be addressed now, before mortgage rates rise, said Charlene Peterson, director of Fannie Mae's Nevada Partnership Office.

"The affordable housing issue is not on radar screens," she said. "People are qualifying, but as rates rise home prices will rise."

Peterson said the issue could be addressed by resolving issues attached to construction defect litigation, which some blame for driving up housing costs by increasing builders' insurance premiums and forcing some builders out of business.

"If those issues are resolved, it is not going to continue to raise home prices and it will begin stabilizing home prices," she said.

Steve Hill, chairman of the Coalition for Fairness in Construction, said the dream many people have of owning a home will become unobtainable once mortgage rates start going up.

"Prices are going up more than 6 percent a year (in Nevada)," he said. "It's great if you own a home, but not if you want to buy."

"The ability to own a home is running away from many, and mortgage rates are masking the problem."

Hill said many home builders are not building affordable entry-level housing, such as town homes or condominiums because of the threat of being sued over alleged construction defects.

"Affordable housing is being affected by land prices and insurance prices," he said. "To solve both those, dense housing needs to be built. But homebuilders are not in a position to build the town homes we need."

While low mortgage rates helped people buy homes they might not otherwise be able to afford, the rates have given a boost to the mortgage industry.

"Performance of housing and the housing finance system was extraordinary, almost breathtaking in 2002," Levin said.

Nationwide there were $2.5 trillion in mortgage origination loans last year, which included refinances, Levin said.

Many people opted to use the low mortgage rates to take cash out of their home. Nationwide, about $140 billion of cash was taken out of homes and contributed towards people's disposable income in 2002, Levin said.

This year is shaping up to be almost as strong, with an estimated $2 trillion in mortgage origination loans nationwide, he said.

"It is shaping up to be the second or third largest year in history," he said.

In Nevada, there were about $6 billion in mortgage origination loans last year, Lindsay said.

"Most of that was refinancing, but there was a lot of purchases," he said.

Lindsay said loans will taper off by the third or fourth quarter this year as rates go up, cutting down on refinances. He predicts the state could see anywhere from $4.5 billion to $5 billion in mortgage origination loans.

"It will be a little less," he said. "It won't be the fever pitch it was last year."