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

While rapidly rising mortgage rates are already seeming to cool overheated housing markets, they are putting the dreams of millions of Americans even further out of reach, researchers and real estate experts said.

The income needed to qualify for a home skyrocketed: Mortgage, property tax, and insurance payments for an average home priced at $340,700 were $700 more per month in April 2022 than a year earlier. And the annual income required to qualify for such a home is $28,000 higher in April 2022 than it was last year, according to the Joint Center for Harvard Housing Studies, which analyzed data from Freddie Mac and the Association National Real Estate Brokers.

That cost about 4 million tenants last year alone, said Daniel T. McCue, senior research associate at the Joint Center for Housing Studies.

“If the door is closing on affordable home ownership, it would curb some significant housing inequalities,” he said Wednesday during a webinar panel discussion on the report.

A tale of two real estate markets

Economic gains made before the pandemic; financial stimulus benefits and moratoriums on foreclosures and evictions during the pandemic; and a strong job market; it not only helped keep people in their homes, but it also allowed other Americans — especially older millennials and people of color — to have the financial resources to become homeowners.

But in March 2022, home prices were up 20.6% year-over-year — the biggest jump in 30 years of record keeping, according to Joint Center for Housing Studies tabulations of CoStar and CoreLogic Case-Shiller Home data. Price Indexes. Rents have also skyrocketed, especially for single-family homes that served as remote offices for families during the pandemic.

This caught the attention of investment firms, who bought moderately priced homes in booming markets and then rented or traded for profit. Investor holdings accounted for nearly 30% of all homes sold during the first quarter of this year, Harvard housing studies researchers noted, citing data from CoreLogic.

New construction also increased, but most of these new homes sold for more than $400,000, putting them out of reach for first-time buyers, the researchers said.

The growth of home ownership, however, has not been enough to close the gap on long-standing systemic racial disparities. At the start of 2022, home rates for black and Hispanic families were 45.3% and 49.1%, respectively. By comparison, white households had a 77% homeownership rate, the researchers wrote, citing data from the US Census Housing Vacancy Survey.

Rising home values ​​and record low interest rates during the heart of the pandemic have further exacerbated the already drastic wealth gap between landlords and tenants, as well as racial inequalities, according to the study.

“People who are trying to buy their first homes, families who are trying to get out of rent [housing] into something more affordable… the market right now isn’t working for that demographic,” said Alanna McCargo, president of Ginnie Mae, the federally owned mortgage lender.

Adding to the concern, she said, are not only rising rates of evictions and foreclosures following the lifting of pandemic-related moratoriums, but also the impact of inflation.

“We have to be very intentional about not leaving people behind,” McCargo said.

Massive supply and demand imbalance

The eviction and foreclosure moratoriums implemented during 2020 helped ease the financial strain on many families, but some have not yet been able to dig in, according to the Harvard study.

About 10% of households were late on their rent or mortgage payments during the period December 2021 to April 2022. The share of tenants late in payments was 14.5% versus 6% for homeowners, they found The researchers.

“Families will be very precariously inhabited, and we may even see an increase in homelessness as a result, which is already increasing in many communities,” said Sarah Saadian, senior vice president of public policy at the National Low Income Housing Coalition. , adding that it is already at a “crisis point”.

At the heart of this is a huge imbalance between supply and demand, said Ryan Marshall, president and chief executive officer of Atlanta-based homebuilder PulteGroup. Marshall noted higher construction costs, supply restrictions, and strict land-use policies discouraged development.

“Existing municipalities and existing residents don’t want new neighbors,” he said. “They have their slice of paradise and they don’t want new friends, and it’s the sad reality of the world we live in today.”

Joint Center for Housing Studies researchers noted that a potential solution could come from the Biden Administration’s Housing Supply Action Plan, which seeks to increase affordable housing options through funding state and local reforms, adding requirements for that federally owned housing be owned by the owner. occupiers and helping the private sector address supply chain challenges. Another option, they noted, are state efforts such as land-use changes to promote density in states like California and Oregon.

5 signs the housing market is starting to slow down
While the Federal Reserve seeks to smooth demand for homes and contain inflation by raising rates, it can do little to deal with ongoing restrictions on the number of homes available for sale, Fed Chair Jerome Powell said in testimony before the Senate Banking Committee. Still, he cautioned, rising mortgage rates could end up driving people out of home ownership.

The Federal Reserve does not directly set the interest rates borrowers pay on mortgages, but its actions influence them. Mortgage rates tend to follow 10-year US Treasuries. But mortgage rates are indirectly impacted by the Fed’s actions on inflation. As investors see or anticipate rate increases, they often sell government bonds, which drives up yields and, with it, mortgage rates.

If monetary policy tightens and spurs an economic slowdown, that poses an even greater concern, Harvard researchers wrote.

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

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

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