The dream of owning a home is beyond the reach of 4 million Americans

Though rapidly rising mortgage rates are already appearing to cool overheated housing markets, they are putting the homeownership dreams of millions of Americans even further out of reach, said researchers and housing industry experts.

The income required to qualify to own a home has skyrocketed: Mortgage, property tax and insurance payments for a home with an average price of $340,700 cost $700 more per April 2022 month than a year earlier. And the annual income required to qualify for such a home is $28,000 more in April 2022 than a year earlier, according to the Harvard Joint Center for Housing Studies, which compiled data from Freddie Mac and the National Association of Realtors analyzed.

This priced out about 4 million renters in the past year alone, said Daniel T. McCue, senior research fellow at the Joint Center for Housing Studies.

“If the door to affordable housing closes, it would lead to significant housing inequalities,” he said on Wednesday during a webcast panel discussion of the report.

A tale of two housing markets

Pre-pandemic economic gains; financial incentives and moratoria on foreclosures and evictions during the pandemic; and a strong labor market; not only helped keep people in their homes, but also enabled other Americans — particularly older millennials and people of color — to have the financial resources to become homeowners.

But in March 2022, home prices rose 20.6% year over year — the largest increase in 30 years of recording, according to the Joint Center for Housing Studies tables on CoStar and CoreLogic Case-Shiller home price index data. Rents have also skyrocketed, particularly for single-family homes that served as remote office space for families during the pandemic.

This caught the attention of investment firms, which bought apartments at moderate prices in booming markets and then rented them out or sold them at a profit. Investor participation accounted for nearly 30% of all homes sold in the first quarter of this year, researchers at Harvard’s Housing Studies found, citing CoreLogic data.

Construction workers pass planks of wood as they build new homes in Monterey Park, California.

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

However, the growth in home ownership has not been enough to narrow the gap in long-standing systemic racial disparities. As of early 2022, the homeownership rate for Black and Hispanic households was 45.3% and 49.1%, respectively. By comparison, white households had a 77% homeownership rate, researchers wrote, citing U.S. Census data on home vacancies.

The rise in home values ​​and record-low interest rates during the heart of the pandemic have widened the already dramatic wealth gap between homeowners and renters, as well as racial inequalities, the study found.

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

Among the growing concerns, she said, are not only rising rates of evictions and foreclosures following the lifting of pandemic-related moratoria, but also the impact of inflation.

“We have to be very careful that we don’t leave people behind,” McCargo said.

Massive supply-demand imbalance

Moratoria on evictions and foreclosures introduced in 2020 helped ease the financial burden of many households, but some have yet to dig, according to the Harvard study.

About 10% of households were in arrears on their rent or mortgage payments between December 2021 and April 2022. The rate of renters in arrears was 14.5% versus 6% for homeowners, researchers found.

“Households will be very poorly housed and we may even see increased homelessness as a result, which is already rising 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 its heart is a massive imbalance between supply and demand, said Ryan Marshall, president and chief executive officer of Atlanta-based construction company PulteGroup. Marshall noted that higher construction costs, supply shortages, and strict land use policies have discouraged development.

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

Researchers at the Joint Center for Housing Studies noted that a potential solution could come from the Biden Administration’s Housing Supply Action Plan, which aims to increase affordable housing opportunities by funding state and local reforms and adding requirements for federally owned housing that have to go to the owner. Residents and support to the private sector to address supply chain challenges. Another option, they noted, is federal efforts such as density-enhancing land-use changes in states like California and Oregon.

5 signs the housing market is slowing down
While the Federal Reserve is trying to dampen home demand and curb inflation by raising interest rates, there is very little it can do to address ongoing restrictions on the number of homes for sale, Fed Chair Jerome Powell said on Wednesday in a hearing before the Senate Banking Committee. Still, he warned, rising mortgage rates could eventually discourage home ownership.

The Federal Reserve doesn’t directly set the interest rates borrowers pay on mortgages, but its actions affect them. Mortgage interest rates are generally based on 10-year US government bonds. But mortgage rates are indirectly affected by the Fed’s policy on inflation. When investors see or expect interest rate hikes, they often sell government bonds, which pushes up yields and, in turn, mortgage rates.

Should monetary policy tighten and trigger an economic downturn, that’s even more concerning, Harvard researchers wrote.

“With so many households financially stressed by high housing costs, a serious downturn could turn the recent spike in home insecurity into a ripple,” they wrote.

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

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