Housing is becoming more expensive for buyers and renters alike.
And that’s if you can find anywhere to live at all.
But why?
For a bit of context, I turned to Daryl Fairweather, Chief Economist for the real-estate brokerage,
Redfin.
Over the past decade the median home price has risen 80%.
And get this: In 1950, the median home price was 2.2 times the average annual income in
the U.S.and by 2020, it was five times the average annual income.
And that doesn’t even account the rise in interest rates on a mortgage in the last year
alone– which is not inconsequential.
So the median home price has jumped an estimated 17% in the last year, and that comes as interest
rates on mortgages have nearly doubled– rising from around 3% in June 2021 to over
5.5% today
Interestingly, high interest rates could be suppressing home sales and, in turn, prices.
But, a small dip in home prices does not make housing
more affordable, when mortgage rates are still so high.
For example, the total cost of a $200,000 mortgage, over 30 years at 2.98% would be
around $303,000 when totalling in interest.
That same mortgage at 5.52%, has a total cost of over $400,000, erasing any savings gained
by the slightest reduction in home prices.
So, high mortgage rates are pushing total costs up higher, driving people into the rental
market, which is in turn, driving up rent prices.
On average, rents in May were up 15% than a year before, according to Redfin, but in
some cities, like Austin, Nashville, or Seattle, the rise was more than 30%
Moving somewhere more affordable may be an option for some, but there are ripple effects
with that as well.
As a result, the cost of shelter remains too high for many Americans, regardless of how
they try to find it.
And one major issue is simply: supply.
Steve Berg is the Vice President for Programs and Policy at the National Alliance
to End Homlessness.
According to Freddie Mac, a government sponsored home mortgage provider, the U.S. has a housing
supply shortage of 3.8 million units, but that number could be much higher.
From 2009 - 2019, metro areas like Washington D.C., have underproduced 150,000, or 6.5%
of its total housing stock, according to one of their recent reports.
And shortage is not just confined to coastal cities.
Phoenix, Boise, and Salt Lake City all have underproduced 5% of what is needed to keep
up with housing needs
The cost of housing, and severe shortage of supply, only exacerbated by the pandemic,ends
up excluding some from finding housing at all.
A 2020 Government Accountability Office study found that with all other things being equal,
a $100 dollar increase in the median rent was associated with a 9% increase in the estimated
homelessness rate in the U.S.
According to the National Low Income Housing Coalition, the amount one would need to earn
for a two bedroom rental home in 2021 is $24.90 per hour,The federal minimum wage is $7.25
an hour.
And according to the Coalition,
“In no state, metropolitan area, or county in the U.S. can a worker earning the federal
or prevailing state or local minimum wage afford a modest two-bedroom rental home at
fair market rent by working a standard 40-hour work week.”
While government assistance can offer some relief, experts say it cannot be the whole
solution.
Under the Housing Choice Voucher program, the Federal Government pays some, or all of
the rent for low-income families, people with disabilities, and the elderly.
But that program can’t provide help to everyone that needs it.
Especially when considering the role home ownership plays in the “American dream,”
experts say it is important to put the financial and socio-economic considerations into larger
focus.
Simply put, a 2022 report by the National Association of Realtors states that a household
making around $100,000 could afford to buy 51% of active home listings.But, only 35%
of White, 25% of Hispanic and only 20% of Black Americans have an income higher than
$100,000.
So, that raises the question about who has access to the housing market and what that
means for future generational wealth.
For the PBS NewsHour, I’m Tim McPhillips.