Looking Back: Redefining 'Affordability' for the 90's

From the New York Times:

Redefining 'Affordability' for the 90's
By THOMAS J. LUECK
Published: January 20, 1991

And for many homeowners, the gains in affordability are at best a mixed blessing. Millions who bought in the late 80's, believing their homes would prove to be lucrative investments, went further into debt for mortgage loans than has traditionally been considered prudent. Now, caught in a nationwide real estate slump and facing the propspect of selling for little more -- or even less -- than they paid, many are staying put, cutting back on other expenses and paying housing costs that are a heavy load.

For others, just staying put has become impossible. In New York, New Jersey and Connecticut, foreclosures on homeowners rose more than 30 percent in the first nine months of 1990. Evictions of renters are also on the rise; court records in New Jersey indicate they have risen by over 25 percent since 1986, to 163,994 last year.

"There is no question that people are feeling pinched and house poor," said Robert Engelstad, vice president for mortgage standards at the Federal National Mortgage Association, or Fannie Mae, the nation's largest buyer of real estate loans from thrifts, banks and mortgage companies.
...
"People in the 1980's expected to hold on to a home for two or three years and sell at a profit, so they thought it was O.K. to fall behind on their MasterCard bills in the meantime," said George Yankowich, a developer in Greenwich, Conn., one of the nation's wealthiest communities.
...
For home buyers, the rule had traditionally dictated that no more than 28 percent of their income be devoted to mortgage payments, real estate taxes and home insurance premiums. The 28 percent limit was intended to prevent people from going too far into debt. It also stipulated that the totality of a home buyer's debt obligations, including payments on the home loan, car loans, credit card purchases and other personal debts, should not claim more than 36 percent of income.

But for recent home buyers, particularly in the most expensive urban areas, the guidelines have been stretched widely. A 1990 survey of hundreds of home buyers in 18 large metropolitan areas, to be released later this month by the Chicago Title and Trust Company, found that most were paying more -- sometimes much more -- than 30 percent of their income for mortgage and real estate tax payments. Deepest in debt, the survey found, were 1990 buyers in the New York area, who are now paying an average of 40.6 percent of their incomes to mortgage lenders and tax collectors.