Written by Bethany Blankley (The Center Square)
A new poll found that only 10 percent of those surveyed said they could afford the “American dream” of homeownership, while others cited the costs of 40 years of high inflation, 23 years of high interest rates, limited supply of affordable housing and inflation-induced declines in income.
According to the Wall Street Journal/NORC: vote In a survey of 1,502 American adults, the sentiment was consistent across gender and partisan lines, with younger Americans expressing the greatest despair, saying “home ownership has become too expensive to afford.”
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The Journal reported that “while 89 percent of respondents said homeownership was essential or important to their vision of the future, only 10 percent said it was easy or somewhat easy to achieve.” “Financial security and a comfortable retirement were rated as essential or important by 96 percent and 95 percent of people, respectively, but only 9 percent and 8 percent rated them as easy or somewhat easy, respectively.”
In another survey 12 years ago, more than half of 2,500 respondents said the American dream of homeownership was “still real.” That’s no longer the case, the Journal notes.
He also points to a study from the Massachusetts Institute of Technology that found that 90 percent of Americans born in 1940 “ultimately did better than their parents,” but only about 50 percent of those born in the 1980s “could say that.”
This comes after a Zillow report found that homebuyers need 80% more income to purchase a home today than they did four years ago. Reported Earlier this year, the monthly mortgage payment for a typical U.S. home nearly doubled in January 2020 to 10% down, according to a report.
Costs have risen, but wages haven’t kept pace. Zillow noted that in 2020, a household earning $59,000 a year “could comfortably afford the monthly mortgage interest cost of a typical American home, with a 10% down payment and spending no more than 30% of their income.” “That’s below the median U.S. income of about $66,000, meaning more than half of American households have the financial means to afford homeownership.”
Real estate agents told The Center Square that the situation is particularly dire for first-time homebuyers in major cities where home prices are inflated. With more people leaving the rental market, there are fewer homes for sale and new construction is not meeting demand.
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Many homeowners refinanced their mortgages when rates were much lower during the coronavirus lockdowns, so they aren’t selling now that rates have more than doubled from a few years ago after the Federal Reserve raised its benchmark interest rate to its highest level in decades.
This is explained by the “lock-in” effect. Harvard report “With below-market interest rates, current homeowners are less motivated to move … and the number of homes available for sale drops dramatically,” he explains.
The report said high inflation costs, high interest rates, low inventory, lock-in effects and other factors are making “homeownership increasingly difficult.”
The Harvard report also found that rents have also risen by more than 26% nationwide since the beginning of 2020, reaching an all-time high. Rents have grown faster than incomes for decades. Half of all renter households, or 22.4 million households, were cost-burdened in 2022, the highest level on record, the report found. Cost burden is defined as renters or homeowners spending more than 30% of their income on housing and utilities, according to the report.
According to a Redfin analysis, 61% of renters nationwide can’t afford the median apartment price. Reported.
Bank of America analysis suggests that relief is not coming anytime soon. The U.S. housing market is “‘stuck’ and we are not confident it will be unwound until 2026 or later,” according to CNN. Reported.
Home prices are expected to remain high and are expected to rise due to the housing shortage. Mortgage rates are not expected to fall even though the Federal Reserve is expected to cut interest rates this month.
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“This is going to take years to resolve. There’s no magic solution,” Michael Garpen, Bank of America’s chief U.S. economist, told CNN. “The message to first-time homebuyers is patience and frustration.”
A situation described as a “one-two punch” makes 2024 a historically challenging year to buy a home, especially for first-time homebuyers.
“It was a strange combination. Mortgage rates were up significantly, but home prices were also up. That doesn’t usually happen,” Gapen said.
Bank of America projects that the lockdown effects could last for six to eight years.
Co-published with permission from Center Square.
