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Why it’s getting even harder to keep a roof over your head

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the rent is double digit percentage in some cities. Buying a home, on the other hand, isn’t the most affordable it’s been since the mid-1980s.home loan interest rate exceeded 6% house prices are record high has taken a hit in recent months, pushing many prospective homebuyers out of the market.

Despite signs of a cooling down in the market, it doesn’t seem like much relief for homebuyers.

A year ago, a buyer who paid a 20% down payment for a single-family home priced on the average of $363,800 and paid the rest at a 2.88% mortgage rate (average at the time) paid $1,208 per month.

Today, homeowners are paying the median home price (currently $396,300) with a mortgage. Current average 6.29% You will pay $1,960 per month in principal and interest. $752 more each month.
When inflation Pushing up most household expenses, most prospective home buyers can’t afford the more expensive monthly payments.

Over the past five years, average home prices have risen by 60%, but average incomes have risen by less than 15%.

“House prices are very different from income levels,” Walden said.

Americans now spend more than 35% of their average income on monthly principal and interest payments on a new, average-priced home. Historically, Americans spent nearly 25% of their median income on payments.

Walden said it would take some combination of these to get back to that level: a 40% increase in personal income or a halving of mortgage interest rates. or have to be 30%.The median drop in home prices.

But none of these things are likely to happen anytime soon.

how did we get here

Part of the Reason Housing Has get very expensive Record-low mortgage rates seen during the Covid-19 pandemic increased demand for homes, which pushed prices up. Multiple buyers competed and bid for a limited pool of homes for sale. war and all cash offer became commonplace and prices rose to all-time highs.

Buyers are now grappling with a combination of rising home prices and higher mortgage rates.

“When interest rates returned to 6% levels, we had a problem,” Walden said.

The other side of the problem is supply. Eager buyers faced a long-prepared nationwide housing shortage, creating a mismatch between supply and demand that pushed home prices higher.

US is lagging behind about 5.5 million units According to the National Association of Realtors, over the last 20 years builders have not kept up with historic building trends. Add property destruction, such as demolition and natural disasters, and the total shortfall during that time could be close to 6.8 million.
Should you rent a house or buy one?

The shortage of units is so severe that it will take more than a decade to catch up, according to the NAR.

But more houses and apartments mean nothing if people can’t afford them.

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 afforded a median home last year After 12 months it stopped workingaccording to the Center for Shared Housing Research at Harvard University.
If there is no house to buy, the renter stays in the house, push up rent moreover already tight market.
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 Rent increased by 17% Since last year, according to Realtor.com. But the affordability crisis is happening nationwide, in all parts of the country.
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 the 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 ownershipAccording to the NAR, 72% of white Americans own a home, compared to just 43% of black Americans.

So what happens next?

There are clear signs of cooling in the housing market.Home sales are declining 7 consecutive months Rising costs of buying and financing a home are pushing more people out of the housing market. Usually when demand dries up, prices go down and eventually mortgage rates settle.

In the meantime, however, mortgage rates could rise further as the Federal Reserve continues to raise interest rates in its fight against inflation.

The Fed 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 drives up yields and raises mortgage rates.

How much house can you afford?

Most housing policy experts say that solving the affordability crisis requires building 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 reforming zoning and land-use policies to encourage communities to build lower-cost housing. The purpose is that. 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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