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

Although rapidly rising mortgage rates are already beginning to cool overheated housing markets, researchers and housing industry experts said, they are putting millions of Americans’ dreams of home ownership out of reach.

The income needed to qualify for a home has gone up dramatically: Mortgage, property tax and insurance payments for a $340,700 median home cost $700 per month in April 2022 than they did the year before. And the annual income needed to qualify for such a home is $28,000 higher in April 2022 than last year, according to the Harvard Joint Center for Housing Studies, which analyzed data from Freddie Mac and the National Association of Realtors.

McCoy, senior research associate at the Joint Center for Housing Studies, said this has led to the pricing of about 4 million renters over the past year alone.

“If the door to affordable home ownership is closed, it will close some of the big housing inequalities,” he said Wednesday during an online panel discussion about the report.

A tale of two housing markets

economic gains made before the pandemic; The benefits of fiscal stimulus and stopping foreclosures and evictions during the pandemic; And a strong job market. It not only helped keep people in their homes but also allowed other Americans—particularly older millennials and people of color—to obtain the financial resources to become homeowners.

But in March 2022, home prices rose 20.6% year-on-year — the biggest jump in 30 years of record keeping, according to the Joint Center for Housing Studies tabulation of data on CoStar and CoreLogic Case-Shiller home price indexes. Rents have skyrocketed, too, especially for the single-family homes that have served as remote office spaces for families during the pandemic.

This caught the attention of investment firms, who bought moderately priced homes in booming markets to rent out or flip for profit. Harvard housing studies researchers noted that investor property accounted for nearly 30% of all homes sold during the first quarter of this year, citing CoreLogic data.

Construction workers pass wooden planks during construction of new apartments in Monterey Park, California.

New construction increased, too, the researchers said, but the majority of those new homes sold for more than $400,000, putting them out of reach of first-time homebuyers, the researchers said.

However, growth in home ownership has not been enough to narrow the longstanding, systemic racial disparities. In early 2022, the home ownership rates for black and Hispanic households were 45.3% and 49.1%, respectively. By comparison, white families have a home ownership rate of 77%, the researchers wrote, citing US Census housing survey data.

According to the study, the increase in home values ​​and record-low interest rates during the turn of the pandemic has widened the already massive wealth gap between homeowners and renters, as well as racial inequality.

“People trying to buy their first homes, families trying to move out of rent [housing] “To something more affordable…the market right now isn’t working for that demographic,” said Alana McCargo, president of Ginnie Mae, a supporter of the federally owned mortgage.

Adding to the growing concern, she added, is not only the high rates of evictions and foreclosures after the lifting of the moratorium related to the pandemic, but also the impact of inflation.

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

A massive imbalance between supply and demand

Eviction and foreclosure decisions put in place during 2020 have helped ease the financial pressure on many families, but some haven’t been able to get out yet, according to a Harvard study.

The researchers found that about 10% of households were behind on rent or mortgage payments during the period from December 2021 to April 2022. The percentage of renters who were behind on payments was 14.5% versus 6% for homeowners.

“Families will be in a very precarious shelter, and we may see an increase in homelessness as a result, which is already increasing in many communities,” said Sarah Saadian, Senior Vice President of Public Policy for the National Coalition on Low-Income Housing. Adding that he is already at a “crisis point”.

The crux of this is the massive imbalance between supply and demand, said Ryan Marshall, president and CEO of Atlanta-based Bolt Group. Marshall noted that rising construction costs, supply restrictions, and stringent land-use policies have hampered development.

“Existing municipalities and the current residents don’t want any new neighbors,” he said. “They’ve got their own slice of heaven, and they don’t want any new friends, which is the sad truth of the world we live in today.”

The Joint Center for Housing Studies researchers noted that one potential solution could come from the Biden administration’s Housing Supply Action Plan, which seeks to increase affordable housing options by funding state and local reforms, adding federally owned housing requirements to go-to owner-occupiers, and helping the sector. own to meet supply chain challenges. Another option, they noted, is state efforts such as boosting intensity of 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 ease home demand and curb inflation by raising rates, it can do little to address the ongoing restrictions on the number of homes available for sale, Fed Chair Jerome Powell said Wednesday in testimony before the Senate Banking Committee. However, he warned that rising mortgage rates may eventually drive people out of home ownership.

The Federal Reserve does not directly determine the interest rates that borrowers pay on mortgages, but its actions affect them. Mortgage rates tend to track 10-year US Treasuries. But mortgage rates are indirectly affected by the Fed’s actions on inflation. As investors see or expect interest rates to rise, they often sell government bonds, driving up yields and with them mortgage rates.

Harvard researchers wrote that if monetary policy tightens and economic contraction is stimulated, that is a greater concern.

“With so many families financially stressed by rising housing costs, a dangerous downturn could turn the recent rise in housing insecurity into a wave,” they wrote.

CNN’s Matt Egan and Anna Bahney contributed to this report.

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