Wanna Buy a House? Good Luck with That

 

U.S. Census Bureau and U.S. Department of Housing and Urban Development, Median Sales Price of 

Houses Sold for the United States [MSPUS], retrieved from FRED, Federal Reserve Bank of St. Louis

Soaring home prices have defied even inflation, rents hot behind. To look at the numbers, we need to know what the words mean. According to Statista.com, “The Housing Affordability Index [HAI] uses data provided by the National Association of Realtors (NAR). It measures whether or not a family earning the national median income is able to afford the monthly mortgage payments on a median-priced existing single-family home. An index value of 100 means that a family has exactly enough income to qualify for a mortgage on a home.”  The NAR no longer uses a fixed rate metric, which generally results in a higher interest rate, choosing an adjustable rate instead, and assumes a 20% down-payment.

The HAI in January hovered around 148, a highly exclusionary number on its own. But the NAR indicated it would not publish the HAI expected in May. Why? Average US interest rates, based on current inflationary trends, roughly doubled in a day. From 2.67% to 5.08%, and the HAI will be increased by a staggering number as a result. Even before the rate hike, American home ownership was becoming elusive for those first-time buyers. “Not only did the usual expensive metro areas like Los Angeles and New York rate as unaffordable, but so did many regions many of us think of as far more accessible, like Detroit and Cleveland. In fact in a full three quarters of the country, home ownership was out of reach for the average worker.” Inc.com. 

After the above mortgage rate hike, those numbers are just getting so much worse. “Here's a not-so-fun fact: The monthly mortgage payment it takes to buy the typical home in the U.S. is now up by a staggering 55% compared with the start of last year.” NPR, April 8th. In short, if you do not already own a home and have an established interest rate, only cash buyers, higher income Americans or those with substantial existing equity are going to be able to buy a new single-family home.

The American post WWII dream of home ownership, already significantly diminished, is fading even faster. But even as we seem to be transitioning into a nation of renters, we are watching rent-as-a-percentage of income skyrocket in major metropolitan areas from a prudent but pricey 30% to 50% or more. Rentals are rising across the land by 10% or much, much more. Housing affordability is one of the top political issues facing mid-term candidates. Inflationary pressures, particularly fossil fuel costs due to Putin’s war and those companies ready to take advantage of the upwards costs, are a political hot potato in search of a solution. 

There is a housing shortage, partially reflected in the exponential rise in homelessness, that is distorting the marketplace so fiercely. Today, we not only have the endemic homelessness of those with addiction or mental health issues but hordes of new individuals who simply cannot afford to rent a home, a tragic reality compounded by the significant dearth of viable rental housing aimed at the lower income renters.

Indeed, there is a crossing between the dearth of rentals and mega-billion-dollar corporations, some now owning thousands of homes. These companies buy available houses, often sight unseen, for cash with a very short (or no) escrow or preconditions, invest an average of $15,000-$25,000 and flip them into the rising rental marketplace. The ease of the sale, the instant full-price-or-higher cash price, is exceptionally attractive to many sellers. 

Buyers get squeezed out fast, some writing personal letters to the sellers to convince them not to take that cash offer, and what once was an “owned” home moves into the rental category. Some maintain that these written pleas, usually based on writing skills and shared values, are secretly perpetuating racism in the housing market, already plagued with the historical neighborhoods created by redlining, a bank practice that effectively created neighborhoods where racial and ethnical minorities were de facto excluded.

There just isn’t enough affordable housing. The April 11th Motley Fool notes: “The National Low Income Housing Coalition (NLIHC), a not-for-profit organization focused on advocating for affordable housing, found in its 2021 GAP report [measuring available housing at varying levels of income] that for every 100 extremely low-income renter households, which are those who earn 30% or less than the median income for the area, there were only 37 available homes for rent in 2019. Those earning 50% or less of the median income had 60 homes for every 100 households… Today's affordable housing crisis goes a lot further than housing the nation's poorest families. The number of those who can no longer afford to buy or rent without majorly exceeding the recommended income threshold of 30% is rising due to the movement of the markets over the last two years…

“Homes that were once considered affordable as related to the median income for the area have increased pricing to match market rents, further reducing the supply of affordable homes. The cost of rent jumped 10.1% from 2020 to 2021, with some markets seeing rent prices climb in the 20% to 40% range year over year.” With the above mortgage rate hike, which is factored into rental pricing, bad will soon be impossibly horrible. 

It takes time to build new housing, supply chain disruptions and higher labor costs have pushed the cost of building materials literally through the roof, and appropriate land is hard to come by. States like California, where high housing costs are normal, have passed statewide enabling statutes, trumping local zoning laws, to build small rental units on existing homesites. Resistance has been fierce. In warm-climate Los Angeles, the upcoming mayoral election will probably rise and fall on the homelessness crisis. 

Other efforts to reduce build costs and speed up the process involve the new use of large-scale 3D printing (concrete extrusion walls versus wood), with one home just completed in a Richmond, Virginia suburb. This massive transition, the increasing exclusion of average Americans from affordable home ownership creating a nation of renters, is more than economic displacement. People with less of a stake in a home are vastly different political animals than those who own their homes.

I’m Peter Dekom, and the polarization issues facing America will only grow worse in the schism between the haves (homeowners) and the have-nots (those who are forced to rent).