As inflation, gas prices and other rising costs have strained people’s pockets, housing remains a challenge for buyers and renters alike.
Last year, the median home price rose more than 15 percent, according to data compiled by the St. Louis Federal Reserve. And renters are feeling a similar pain: On average, rents in May were up 15 percent from a year earlier. according to redfinbut in some cities, like Austin, Nashville or Seattle, the increase was more than double.
All of this makes finding and affording shelter increasingly difficult. And while this seems to have been exacerbated in recent months, home prices have been rising steadily for a decade, putting homeownership and affordable rentals out of reach for many.
Here’s a look at some of the factors contributing to the tough housing market and who is being hit the hardest.
Inflation rates and mortgages
In the first quarter of 2021, the median home price in the United States was $369,800, according to the St. Louis Federal Reserve. By the first quarter of 2022, the median home price had risen to $423,600.
As inflation rose, with the consumer price index hitting a 9 percent year-over-year increase in June, the highest in more than 40 years, the Federal Reserve began to raise interest rates. This has led to higher mortgage rates, which are a product of inflation and interest rates, said Daryl Fairweather, chief economist at real estate brokerage Redfin. “Because inflation has been on the rise, it means that anyone who is lending money knows that he is not really going to get the real value back unless he charges a higher price. [mortgage] because money in the future will not be worth as much as money today when there is inflation.”
The result has been steep and costly increases. According to Freddie Mac, the average rate on a 30-year fixed-rate mortgage has nearly doubled since last year, rising from 2.8 percent in June 2021 to 5.52 percent in June this year.
This has slightly cooled demand for homes and, in turn, home prices. But what people can save on the purchase price could be erased when you factor in mortgage rates, which at their current level could add about $100,000 to the cost of a $200,000 mortgage over 30 years.
While inflation is a recent factor, home prices have been rising since the low point of the 2012 housing crisis.
Buying a home is out of reach for many people whose wages have not kept up with inflation and general price increases. As of February 2022 Report from the National Association of Realtors found, a household earning between $75,000 and $100,000 per year could afford about half of active housing listings.
In 2020, the median household income level was $67,521, according to Census data analyzed by the Federal Reserve. For people at that income level, options quickly dwindled: They could only afford 34 percent of available housing. Only “35% of whites, 25% of Hispanics, and only 20% of African Americans have incomes greater than $100,000,” according to the report.
Amid skyrocketing prices, many would-be homebuyers are essentially left with two options: rent where they are or move elsewhere.
Buying a home in a cheaper area may sound appealing, but it could be untenable for those who need to live where they work. And buying a house in a different market creates its own ripple effects.
If a potential homebuyer lives in San Francisco, “where the median home price is $1.5 million, and moves to Sacramento, where it costs more than $450,000, that’s a huge savings,” Fairweather said. “But what happens then is that Sacramento home prices go up and people who live in Sacramento renting, for example, face a lot more competition. Your property taxes will likely increase as well. So locals get priced out and then have to move back to the next more affordable subway.”
Even the smallest apartments are too expensive for low-income workers, according to the National Low Income Housing Coalition. In 2021, a worker would need to earn $24.90 an hour to afford a “modest two-bedroom apartment.” NLIHC wrote in a recent report While some states and cities have minimum wages higher than the federal minimum of $7.25 an hour, no worker anywhere in the country earning state, federal, or local minimum wage for a 40-hour workweek currently can afford” a modest two-bedroom rental home at fair market rates, according to the report.
“Housing at the lower end of the rental market,” said Steve Berg, vice president of Programs and Policy at the National Alliance to End Homelessness, “has continually increased substantially faster than earnings at the lower end of the market. wage”.
The biggest issue in the cost of finding shelter is supply. According to Freddie Mac, the United States has a shortfall of 3.8 million units needed to meet current demand.
“Builders haven’t built enough to meet demand,” Fairweather said. “We had fewer homes built in the 2010s than in any decade before the 1960s. But net demand has continued to rise, especially as millennials have entered home-buying age.”
Washington, DC, for example, was about 156,000 units short of what it needed in 2019, according to a new Up For Growth report, a nonprofit organization dedicated to ending the housing shortage. And over the past decade, Phoenix, Boise and Salt Lake City all fell 5 percent of what they needed that year, according to the report.
“Someone compared it to a game of musical chairs, you know, you’re left out,” Berg said. “They are not left out because they are slow. They are staying out because there are not enough chairs.
While federal rental assistance is available, primarily through the Housing Choice Voucher program, the program can’t provide help to everyone who needs it, Berg said. Under the program, the federal government pays some or all of the rent for low-income families, people with disabilities, and the elderly.
“It’s funded so that about a quarter of the people who need help actually get it. And the other three-quarters go on a waiting list and sometimes wait years to get into the program,” Berg said.
The best solution, Berg said, is for communities to build modest rental housing. But local zoning laws can pose significant barriers to that happening. “There’s a phenomenon called NIMBYism, not in my backyard, where people who’ve already bought a home, a single-family home, often don’t want their neighborhood to change” with the addition of smaller, more affordable homes, Fairweather said.
When zoning restricts higher-density new construction, that can drive up home prices and rental prices, and force some people into homelessness altogether. a 2020 Government Accountability Office Study found that, all other things being equal, a $100 increase in median rent was associated with a 9 percent increase in the estimated rate of homelessness in the US.
Housing in America has generally been used as a way to build wealth. But in a housing crisis in which some cannot find a home within their means or at all, there are also generational financial and socioeconomic consequences, experts say.
“If housing is the main source of wealth and is passed down from generation to generation, then it really matters whether or not your grandparents were in a position to buy a house, say, in the 1950s or 1960s before the Civil Rights Act. . it was approved,” Fairweather said.
These consequences for generational wealth may also exacerbate the racial wealth gap, a 2021 Brookings Study Notes.
“Homeownership is often seen as the gateway to the American dream and the gateway to intergenerational wealth. However, this path is often less attainable for African Americans who have a homeownership rate of 46.4% compared to 75.8% for white families. “Homes in predominantly black neighborhoods across the country are valued $48,000 less than predominantly white neighborhoods for a cumulative loss in equity of approximately $156 billion. These are important factors contributing to the racial wealth gap.”