The Multifamily Housing Market Slump

Mon, 02 Jun 2008 14:28:31 +0000

Quite a bit of the housing stock in the urban areas of New England consists of triple-decker, multifamily buildings. Mark Jewell of the Assoicated Press writes that the slump in the housing market is taking its toll there, as well:

LOWELL, Mass.—When Osman and Rose Bangura bought a two-family home three years ago at the peak of a housing boom, they saw a good investment in the $400,000 colonial, just a quarter-mile from the Merrimack River and the renovated 19th century textile mills now helping to fuel Lowell's rebirth.

For a couple years, they lived upstairs while rent from a downstairs tenant helped cut hundreds of dollars off the monthly payment they would have faced if they'd bought a single-family home.

But, like many owners of southern New England's nearly 320,000 two- and three-family homes, the Banguras ran into trouble. Their monthly payment on a pair of adjustable rate mortgages jumped from about $2,900 last summer to nearly $4,200 -- out of reach for a couple with $50,000 in annual income, supplemented by $1,150 in monthly rent from their tenant, a single mother of two children.

Similar stories are playing out across the densely packed cities and pricey housing markets of southern New England, where generations have found older two- and three-family properties more affordable routes to home ownership than single-families.

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With due respect to the Banguras and others in a similar position, I am having a hard time with the numbers here. Taking out a $2900 monthly mortgage payment on a $400,000 property is an insanely bad financial decision, particularly if that was the teaser rate. First, mortgage rates were in the 6% range over this period. At those rates, and even if they financed the whole $400,000, they should have been carrying only $2400 a month for 30 years. How is this the "more affordable" route to home ownership? Second, even before the reset, the $2900 mortgage was over half of the couples' monthly income ($50,000/12 + $1,150) of $5,317.

The numbers suggest that this was speculation, even if the equity hadn't been wiped out for having bought at the peak of the market. It's hard to see why there should be recourse to the taxpayer, or even the "Own to Rent" plan, in cases like this.