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Don't blame market breakdown on subprimes

Those loans were just a response to the real problem.

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I am tired of everyone blaming the breakdown in the credit and housing markets on subprime loans. Subprime loans were certainly part of the problem, but they are a symptom of a deeper issue.

The truth is that subprime lenders, by responding to demand, were the finger in the dike for the whole housing market. The real problem is affordability and the incongruity between incomes and pricing.

Forty years ago, the median national price of a house was about twice the median household income. In the past 10 years, it jumped to four times income.

But in most major economic centers, typical families haven't been able to buy a home for anything near the national median price for decades. In the major markets, there is tremendous dependency on alternatives to the standard 30-year fixed-rate mortgage, which has created a dependency on the least scrupulous mortgage companies and lenders.

The issue of affordability is not news to the major players in real estate. Each month, lenders, developers, and government agencies study the National Association of Realtors' Housing Affordability Index. This index provides a way to track whether housing is becoming more or less affordable for typical households nationwide.

For the most part, the index is excellent for charting the strength of the market. But it assumes that a borrower makes a 20 percent down payment and that the maximum mortgage payment is 25 percent of a household's gross monthly income. That used to be standard, but today many buyers can't meet this criteria. It also ignores patterns in the overall relationship between incomes and home prices and could therefore miss a bubble.

Another problem is that this index is based on very broad averages. It tracks the whole country and the four major regions. But the gap between the major markets and the national numbers has been widening rapidly, making the national figures all but worthless for millions of Americans. So even if the numbers look good nationally, and they do, housing affordability indexes for metropolitan areas confirm the impression shared by millions of home buyers that homes aren't affordable where the jobs are.

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