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Affordability Crisis: Devastating Human Toll Unleashed

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Clear Facts

  • Soaring mortgage rates and high housing prices are causing people to reconsider buying a home or discouraging them from searching at all.
  • Inventory is low because people who locked in ultralow mortgage rates during the pandemic are holding on to their homes instead of selling.
  • The housing affordability crisis is affecting not only potential homebuyers but also real estate agents who make their living off home sales.

Soaring mortgage rates have combined with high housing prices to push homebuying out of reach for many people, causing major knock-on effects on their lives.

The one-two punch is causing some people to reconsider buying a home or discouraging them from searching at all. Still, other homebuyers have decided to bite the bullet and purchase a home in this market, but for a property significantly smaller than they could have bought just two years ago.

John Tyson moved to Philadelphia over the summer and is looking to put down roots in the area, which is where he grew up. He began searching for homes just outside the city but realized after research that the time was not right to buy.

Tyson said he used online mortgage calculators to determine, with mortgage rates around 7.5%, that renting is more attractive than buying. In fact, the advantage of renting versus buying has never been greater.

Tyson told the Washington Examiner that he sees buying a home as a good investment for the long term, but paying $3,000 or $4,000 a month is too much of a stretch for him right now.

For context, Tyson was paying just under $2,000 a month in rent in Denver and was spending more than $2,000 when he was living in New York City after he graduated from college.

“I was looking over it all and everything, and I just kind of realized that now is not the best time to buy, just given the mortgages and everything like that,” Tyson said.

In researching affordability, Tyson stumbled across a major factor propping up house prices: Inventory is low because people who locked in ultralow mortgage rates during the pandemic are holding on to their homes instead of selling in order to keep that bargain deal.

“All of those people are holding back, so it’s kind of inflating the market’s housing prices a little bit,” Tyson said.

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During the height of the pandemic, when the housing market became red hot, homebuyers were able to lock in ultralow mortgages of less than 3%. Because mortgage rates have surged so much, owners of existing homes who have mortgages with rates locked in before 2022 are shying away from selling because they want to keep their historically low rates. Almost two-thirds of all mortgages have rates below 4%, and 90% have rates below 6%, according to Freddie Mac.

With few people willing to give up such favorable borrowing terms, there is less home inventory on the market, making new homes more of a hot commodity. Sales of new homes in October were 17.7% higher than in September 2022. Additionally, the median sales price for a new home was $409,300 in October.

In contrast, existing home sales in October slowed 4.1% to a seasonally adjusted annual rate of 3.79 million, their lowest level in more than a decade.

But how long Tyson ends up holding off on entering the housing market will depend on several factors — the biggest being when mortgage rates begin to edge lower. Tyson said that, ideally, he would like to see rates fall back to the 5% level, although he would even be open to locking in a 6% rate if the housing prices also fell to a more reasonable level.

Tyson said he is likely looking at waiting at least another year, noting that it will take a while for the Fed to begin reducing its interest rate target and mortgage rates to respond by drifting down.

“A year from now, especially after one year of a lease, then, come that next lease term, I’d probably think about, OK, is it time to buy, kind of reevaluate the market, especially as that lease comes up for renewal,” he explained.

Tyson said he would be saving up money for the purchase in the meantime. He hopes the extra savings from waiting at least a year can help make his purchase stretch even farther when searching for homes.

Tyson, who is 27, also feels a bit like his generation missed out. Contemporaries of his father, who made his first home purchase at 23, don’t realize how difficult it is for young people nowadays, he said.

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In 2022, the typical age to buy a first home increased to 36, the oldest ever. In 2021, the average age of a first-time homebuyer was 33, according to data from the National Association of Realtors.

It also requires much more income to purchase a home in a budget-safe way. A homebuyer must earn nearly $115,000 to be able to afford a typical home in the United States, according to Redfin. That is up 15% from just a year ago and more than 50% from before the pandemic took hold.

Younger workers still early in their careers are far less likely to earn a salary in that ballpark than those who have been working for several years. For reference, real median household income was $74,580 in 2022, according to the Census Bureau.

More young people are also living at home, another indication of the high costs of owning or even renting a home. A recent Harris Poll for Bloomberg found that about 45% of people aged 18 to 29 live with their families — a share that is similar to the 1940s, when women typically lived at home until they got married.

But the housing affordability crisis isn’t just pushing possible homebuyers out of the market. It is also tough on real estate agents who make their living off home sales.

One real estate agent in the northern Virginia area told the Washington Examiner that she has heard of agents quitting the industry, a bad sign, even considering the historic volatility of the sector.

The real estate agent said that during the pandemic, when mortgage rates were at historic lows, she was seeing anywhere from 10 to 20 offers per home. Now, it’s only about three to six offers per property. She also said she has noticed much less traffic at open houses and that private showings are down.

The real estate agent said she has also seen properties being advertised differently. For instance, she has property listed in Alexandria, Virginia, where the seller is in a position to offer seller financing.

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“We actually huddled together with the seller and have decided to change some of our marketing strategy, and they are going to offer seller financing,” she said. “But traditionally, when seller financing has been offered, it has been at worse terms than what the market will yield … but in this case, the sellers are actually offering a below-market interest rate to incentivize buyers to come to their home and afford it right out of the gate on a monthly basis.”

Patty Zuzek is a Minnesota-based broker who has been in the real estate industry for 28 years. She said homebuying has greatly decelerated as mortgage rates rise and home prices remain elevated. She said home sales transactions for her company are down to about half of what they were just a year ago.

“We are seeing people hold off — they might be looking, might be looking, oops the rates went up one more time and they’re like, ‘I’m out,’” Zuzek told the Washington Examiner during an interview.

The pressures on the industry extend beyond the mortgage market. Zuzek, whose company also builds homes, said the cost of building has also risen, as has the cost of government regulatory compliance fees.

“So it all continues to go up, though when rates go up, it limits the affordability and what people can buy — whether it is existing or not,” she said.

Zuzek said she thinks there is another element involved that is more psychological: fear.

“The younger generation that is purchasing has never seen anything in that 8% [range] because we had such artificial low rates for years and years and years from the foreclosure boom that we were all in,” she said.

Zuzek said possible homebuyers always ask her when mortgage rates might go down. She counsels buyers that owning a home is advantageous for wealth-building and that refinancing is always an option.

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Despite all of the headwinds, Zuzek remains optimistic. “Our industry is very cyclical. Housing is very cyclical. I’m very excited to see what the future is going to bring, and I think educating consumers is one of the greatest things we do as realtors,” she said.

But the market hasn’t dissuaded everyone from entering it, and some have left very satisfied they were able to end up in a home they own and are not losing money each month paying for rent.

Samantha Cassin is a recent homebuyer and decided she would enter the housing market this year despite the high mortgage rates. Cassin and her husband married last November and told the Washington Examiner they knew they wanted to purchase their own home regardless of the timing.

Cassin said she and her husband put much thought and discussion into the process. They started the home search in April. The whole process, which she said was at times very tiring, took between seven and eight months.

“We kind of went in knowing we would have to deal with it for a little and knew that we wanted to probably refinance when we were able to,” Cassin explained. “We knew our budget, we knew what we could afford, and we knew what our parameters were.”

“We really went into it knowing what our limits were,” she added.

Cassin said while the market isn’t the best right now and that she and her husband might have ended up unlucky with the timing, they were eager to start their life together and take the major step of purchasing their first home.

Clear Thoughts (op-ed)

The soaring mortgage rates and high housing prices have created an affordability crisis, severely impacting the lives of potential homebuyers and real estate agents alike.

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This crisis is the result of individuals holding onto their homes with ultralow mortgage rates, leading to low inventory and inflated housing prices. The younger generation faces the brunt of this crisis, struggling to find homes they can afford. Real estate agents are also feeling the pressure, with some leaving the industry due to reduced sales.

It’s time to address this affordability crisis and find solutions to ensure that the American dream of homeownership remains attainable for all.

Let us know what you think, please share your thoughts in the comments below.

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3 Comments

3 Comments

  1. Jeremy

    December 20, 2023 at 9:03 pm

    The efforts of certain types of government leaders have produced a staggering amount of new regulations in pursuit ‘affordable housing’ and climate initiatives. These regulations make building any type of home more expensive. In many places it is now unprofitable for builders to build the kind of low cost housing that has traditionally been available for young buyers that are just starting out on their own.

  2. Lou

    January 24, 2024 at 9:34 pm

    Affordability? Within a recession with interest rates for property at 13.5% interest rate followed by a 13% mortgage in ’85. Gave up every possible accesssory for several years to refinance at 8%. I suggest even though the time is later, similar circumstance applies. Writers write as if the time is unique. No so.

  3. Lou

    January 24, 2024 at 9:39 pm

    Affordability? Within a recession with interest rates for property at 13.5% interest rate followed by a 13% mortgage in ’85. Gave up every possible accesssory for several years to refinance at 8%. I suggest even though the time is later, similar circumstance applies. Writers write as if the time is unique. Not so.

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