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The housing mess, explained – CNNPolitics

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Our conversation via email is below.

Housing Shortage, Affordability Crisis

important subjects: I read that there is both a housing shortage and a housing crisis. Is there a difference between those ideas? Scarcity and crisis? And the problem is that there are literally not enough homes for the population of America?

Bernie: The “housing crisis” is actually “Affordability CrisisOne of the reasons housing has become so expensive for Americans is the nationwide housing shortage. Record-low interest rates during the pandemic, combined with more than a decade of construction shortages, have created a supply and demand mismatch that has pushed home prices higher. taller than.
US is lagging behind about 5.5 million units For the past two decades, builders have been unable to keep up with historic building trends. Add property destruction, such as demolition and natural disasters, and the total shortfall during that time could be 6.8 million, according to the National Association of Realtors.

This is a very deep gap and will take more than a decade to catch up. But more houses and apartments mean nothing if people can’t afford them.

mortgage interest rate is the highest since 2008 And house prices stay the same near record highspricing that drives many prospective homebuyers out of the market. Already tight rental market, push up rent even more.
Owning a home becomes even more difficult as tenants hit the ceiling on how much they can afford to pay each month, as they struggle to save for a down payment. This widens the wealth gap and locks in inequality between those who benefit economically from home ownership and those who do not. Ethnic disparities in home ownership72% of white Americans own a home, compared to only 43% of black Americans.

housing costs are causing inflation

important subjects: Housing costs have been cited as a cause of inflation. How true is that and what are the market forces that can bring down the cost of housing?

Bernie: Rising housing costs are a major driver of inflation. For most people, housing is their biggest expense. About a third of the consumer price index, the basket of goods and services the Bureau of Labor Statistics uses to track inflation, is a “haven” element.

Last month, the index showed that inflation was worse than expected The residential component is up 6.2% from a year ago. This is his biggest increase since 1991. meeting next week Interest rates could rise by 75 basis points, or by 100 basis points.
but there are some early signs of cooling in the housing market.Home sales are declining 6 consecutive months Rising costs of buying and financing a home are pushing more people out of the housing market. When demand dries up, prices will fall, eventually stabilizing mortgage rates.

Where was the housing shortage most acute?

important subjects: Which parts of the country are most affected by this issue?

Bernie: In Sunbelt cities like Phoenix and Austin, Largest increase in housing costs during a pandemic. in Miami, Home prices increased by 33% from a year ago and Rents up 26% From last year. But the affordability crisis is happening nationwide, in all parts of the country.

A mid-priced home costs $749 more per month

important subjects: The Fed’s medicine for inflation is to raise interest rates, which has pushed up mortgage rates. That might control the selling price, but wouldn’t it make the cost of housing higher?

Bernie: The Federal Reserve has aggressively raised interest rates to stem inflation. While this may reduce demand, it also makes it more expensive to buy a home.

However, the Federal Reserve does not directly set the interest rate borrowers pay on their mortgages. Instead, mortgage rates tend to track his 10-year Treasury yield. Investors often sell Treasury bonds in anticipation of his Fed rate hikes, which raises yields, which in turn raises mortgage rates.

A typical 30-year fixed mortgage interest rate is More than double from a year agomaking the purchase of a home, then possible, out of reach today.

A year ago, a home with a median home price of $359,900 had a 20% down payment and the rest of the mortgage was financed at a 2.86% mortgage rate (average then). It was $1,192.

Today, a homeowner would pay $1,941 a month in principal and interest to buy the median home price (currently $403,800) with a mortgage that currently has an average price of 6.02%. $749 more each month.

Americans now spend more than 35% of their median income on monthly principal and interest payments on median homes. Historically, Americans have spent nearly 25% of their median income on payments.

It will take some combination of these to get back to that level, according to mortgage data firm Black Knight. Either personal income needs to increase by 40%, mortgage rates are cut in half, or median home prices drop by 30%.

None of them are likely to happen anytime soon.

the owner is out of reach

important subjects: If house prices fall, millions of people will lose the value of their key assets. Unless house prices fall, millions of Americans will never own a home. It seems like an impossible situation.

Bernie: Some housing economists recently say The housing industry is in recession, but homeowners aren’t feeling it. Indeed, there are many examples of cooling in the housing industry (Dismissal from mortgage company, home builders withdrawing, Declining home sales).However, homeowners still hold significant assets in their homes, averaging $60,000 in the past year.

Still, millions of people have been barred from buying a home as affordability has proven insurmountable.

In April 2021, households had to earn about $80,000 a year to pay a modest 3.5% down payment for a median-price home. A year later, the income requirement was $108,000. This cost increase means that about 4 million rental households who could have bought a median home last year After 12 months it stopped working.

How can this issue be fixed?

important subjects: What are your ideas for solving this problem? Are there effective ways governments can act?

Bernie: Most housing policy experts say the number one job is to ensure a steady supply of affordable new housing. However, these homes are not as profitable for builders as larger, more expensive homes, so both the public and private sectors need to work together.

In May, the Biden administration Housing Supply Action Plan Close the affordability gap and reduce housing costs. The plan will boost the supply of affordable housing by boosting existing federal funding and encouraging communities to reform zoning and land-use policies to build lower-cost housing. It is intended to It also requires home builders to adopt more efficient construction methods.

However, this is not something that can be resolved quickly and some require parliamentary action.

Separately, the Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, said: announced plans This summer, we will expand mortgage options for homebuyers, especially those of color, to close the racial homeownership gap. These programs include down payment assistance, mortgage insurance premium reductions, and a credit reporting system that takes into account your rent payment history.
Some of these ideas include new zero down payment loan Already implemented at no closing cost for certain Black or Hispanic buyers.

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