The dream of owning a home is out of reach for 4 million Americans

While soaring mortgage rates already seem to be cooling overheated housing markets, they are making homeownership dreams even more unattainable for millions of Americans, researchers and housing industry experts say.

The income needed to purchase a home has skyrocketed: Mortgage payments, property tax, and insurance payments for a $340,700 home in April 2022 were worth $700 a month more than a year earlier. And the annual income required to purchase such a home is $28,000 higher in April 2022 than last year, according to the Harvard Joint Center for Housing Research, which analyzed data from Freddie Mac and the National Association of Realtors.

According to Daniel T. McCue, senior fellow at the Joint Center for Housing Research, this has cost about 4 million tenants in the past year alone.

“If the door to affordable homeownership closes, it will lock in significant housing disparities,” he said Wednesday during a webcast discussion of the report.

History of two housing markets

Economic gains made before the pandemic; financial incentive benefits and moratoriums on foreclosure and eviction during the pandemic; and a strong labor market; helped not only keep people in their homes, but enabled other Americans—especially older millennials and people of color—to have the financial means to become homeowners.

But in March 2022, home prices rose 20.6% year-over-year, the biggest jump in 30 years of record keeping, according to CoStar and CoreLogic Case-Shiller Joint Housing Research Center tables. Housing price indices. data. Rents have also risen, especially for single-family homes that have served as remote office space for families during the pandemic.

This attracted the attention of investment firms, who were buying up houses at a moderate price in a booming market, then renting them out or selling them for a profit. Investor contributions accounted for almost 30% of all homes sold in the first quarter of this year, Harvard housing researchers noted, citing CoreLogic data.

New construction has also increased, but most of these new homes have sold for more than $400,000, making them out of reach for new homebuyers, the researchers say.

However, rising homeownership has not been enough to reduce long-standing systemic racial inequalities. In early 2022, Black and Hispanic homeownership rates were 45.3% and 49.1%, respectively. By comparison, white household ownership was 77%, the researchers write, citing US Census housing vacancy survey data.

Rising housing costs and record low interest rates at the height of the pandemic have further widened the already stark wealth gap between homeowners and renters, as well as racial disparities, according to the study.

“People who are trying to buy their first homes, families who are trying to give up rent [housing] into something more affordable…the market is not working for that demographic right now,” said Alanna McCargo, president of Ginnie Mae, a federal mortgage company.

Not only is there an increase in evictions and foreclosures following the lifting of pandemic-related moratoria, but also the impact of inflation, she said.

“We have to be very deliberate not to leave people behind,” McCargo said.

Huge imbalance of supply and demand

Eviction and foreclosure moratoriums introduced in 2020 have helped ease the financial burden on many households, but some have not yet been able to cope, according to a Harvard study.

About 10% of households were late on rent or mortgage payments between December 2021 and April 2022. The researchers found that the percentage of tenants in arrears was 14.5% versus 6% for homeowners.

“Families will be living very insecure lives, and as a result, we may even see an increase in homelessness, which is already on the rise in many communities,” said Sarah Saadian, senior vice president of public policy for the National Low Income Housing Coalition. adding that he was already at a “crisis point”.

At the heart of this is a huge supply-demand imbalance, said Ryan Marshall, president and CEO of Atlanta-based PulteGroup. Marshall noted that higher construction costs, supply constraints, and strict land use policies hindered development.

“Existing municipalities and existing residents do not want new neighbors,” he said. “They have their own slice of heaven and don’t need new friends, and that’s the sad reality of the world we live in today.”

Researchers at the Joint Center for Housing Research noted that one possible solution could be the Biden administration’s Housing Action Plan, which aims to expand affordable housing options through funding for state and local reforms, adding requirements for federally owned housing that is transferred owner. tenants and helping the private sector solve supply chain problems. They noted that another option is state-level efforts, such as density-enhancing land-use changes in states such as California and Oregon.

5 signs that the housing market is starting to slow down
While the Federal Reserve seeks to dampen demand for homes and curb inflation by raising rates, it can do little to remove existing caps on the number of homes available for sale, Fed Chairman Jerome Powell said Wednesday in a speech before the Senate Banking Committee. . However, he warned, rising mortgage rates could eventually lead to people losing their homes.

The Federal Reserve does not set the interest rates that borrowers pay on mortgages directly, but its actions affect them. Mortgage rates tend to track 10-year US Treasuries. But mortgage rates are indirectly affected by the Fed’s handling of inflation. When investors see or expect a rate hike, they often sell government bonds, which drives up yields, and with it, mortgage rates.

If monetary policy tightens and triggers an economic downturn, it will cause even more concern, the Harvard researchers write.

“With so many households struggling financially due to high home prices, a severe downturn could turn the recent surge in housing insecurity into a wave,” they write.

Matt Egan of CNN and Anna Bani contributed to this report.

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