According to the 2006 State of the Nation¿s Housing Report of The Joint Center for Housing Studies of Harvard University, ¿despite the current cool-down, the long-term outlook for housing is bright.¿

The report maintained that ¿the housing sector continues to benefit from solid job and household growth, recovering rental markets, and strong home price appreciation,¿ factors that are countering rising interest rates, slower sales and larger inventories.

¿Over the longer term, household growth is expected to accelerate from about 12.6 million over the past ten years to 14.6 million over the next ten,¿ the report stated.

However, it continued, ¿with the economy generating so many low-wage jobs and land use restrictions driving up housing costs, today¿s widespread affordability problems will also intensify.¿

¿Affordability pressures are now spreading, with median house prices in a growing number of large metros exceeding median household incomes by a factor of four or more,¿ the study maintained, adding that ¿In stretching to afford ever more expensive homes, borrowers increasingly turned to mortgage products other than fixed-rate loans to lower their monthly payments at least initially. The most popular of these loans was the standard adjustable-rate mortgage, followed by interest-only loans, with payment-option loans a distant third.¿

¿In just two years, interest-only loans (which defer principal payments for a set number of years) went from relative obscurity to an estimated 23 percent of the dollar value of all loans and 37 percent of adjustable-rate loans originated in 2005,¿ the report found. ¿Payment-option loans, which let borrowers make minimum payments that are even lower than the interest due on the loan and roll the balance into the amount owed, accounted for nearly 10 percent of last year¿s loan originations, but a much smaller share of outstanding loans. While these products helped to shore up housing markets last year by blunting the impacts of rising interest rates and home prices, proposed federal guidelines may limit their use in the future,¿ according to the study.

¿With building levels still in check and the economy expanding, large house price declines appear unlikely for now. But if the economy falters, both job growth and housing prices will come under renewed pressure. This would spark higher default rates, especially among subprime borrowers, and turn housing from an engine of economic growth into a drag,¿ it stated.

¿While the vast majority of Americans still pay a manageable share of their income for housing, affordability problems are worsening. In just the three years form 2001 to 2004, the number of households paying more than half of their incomes for housing shot up by 1.9 million. This increase brought the total number of low- and middle-income households with several cost burdens to 15.6 million. Working in no way protects families from the hardship of high housing outlays. In fact, 49 percent of poor working families with children (working more than half time but earning less than the poverty level) had severe cost burdens in 2004 and 75 percent had at least moderate burdens. Among near-poor working families with children (with incomes one to two times the poverty level), the share with severe burdens was 17 percent and with at least moderate burdens 52 percent.¿

The report maintained that ¿despite some progress at the national level, about one-tenths of the nation¿s poor still live in neighborhoods with poverty rates over 40 percent.¿

The report noted that newer homes use considerably less energy than older homes.

House price appreciation increased sharply highly than income growth and general price inflation especially since 2000, the report noted.