Becoming a homeowner is part of the upward social mobility earned from the hard work and determination it takes to achieve the American Dream.
Under President Joe Biden’s economy, homeownership is no longer a dream within reach for millions of Americans. The U.S. housing market faces pressures, including inflation, rising home prices and mortgage rates, that make owning a home less affordable and attainable.
Only 30% of U.S. adults think it’s the right time to buy a house, and 70% said they believed home prices would continue to rise in their area, according to Gallup’s annual poll released in April.
At 30%, the U.S. homebuying sentiment is down 23 points from 2021 when 53% of U.S. adults thought it was the right time to buy a house, according to the poll. It is the first time the figure dipped below 50% since Gallup began tracking it in 1978. Gallup surveyed 1,017 adults living in the U.S. from April 1-14 with a margin of error of +/-4%.
ATTOM Data Solutions, a real estate and property data company, reported 2022 second-quarter data showing median-priced single-family homes and condos were less affordable in 97% of U.S. counties. (RELATED: REPORT: Some Homebuyers Lost More Than $100,000 In Purchasing Power In One Year)
“Compared to historical levels, median home prices in 560 of the 575 counties analyzed in the second quarter of 2022 are less affordable than in the past,” the report stated. Median home prices are up almost 30% from 2021, when homeownership in 69% of counties was out of reach for many residents, according to ATTOM’s statement.
According to @ATTOMdata, affordability for median-priced single-family homes and condos in second quarter of 2022 is below historical averages in 97% of counties in the nation. https://t.co/3KE7ZTLIPD
— PA Realtors® (@PARealtors) July 15, 2022
ATTOM found that the percentage of each paycheck that goes to paying for major homeownership expenses rose 31.5% nationwide in the second quarter, “as the median price of a single-family home hit a new high of $349,000.”
After rising 26% in quarter one of 2022, major homeownership expenses are at their highest point since the second quarter of 2007, the report stated.
It now takes over 28% of the average U.S. income ($67,587) to cover major home ownership costs on median-priced single-family homes and condos, ATTOM found.
A homeowner has to make $76,155 a year and pay a 20% down payment to have a mortgage loan on a $349,000 home and spend no more than 28% of their income on mortgage payments, property taxes and insurance, according to ATTOM.
First American chief economist Mark Fleming, who provides economic insight from research about the real estate market and mortgage risk for First American Financial Corporation, said America’s home affordability crisis is linked to mortgage rates and home prices.
“In April 2022, the Real House Price Index (RHPI) jumped up by 45.6 percent compared with a year ago, accelerating faster than any other point in the 30-year history of the series,” wrote Fleming for the First American economic blog. “This rapid annual decline in affordability was driven by two factors: a 21.2 percent annual increase in nominal house prices and a 1.9 percentage point increase in the average 30-year, fixed mortgage rate compared with one year ago.”
“Housing affordability is rapidly declining, and our preliminary nominal house price index estimates for May and June indicate that house price growth is already moderating as potential buyers are pulling back from the market,” wrote Fleming.
Existing home sales fell 5.4% since May and 14.2% over the last year, according to data reported by the National Association of Realtors (NAR). “The inventory of unsold existing homes rose to 1.26 million by the end of June, or the equivalent of 3.0 months at the current monthly sales pace,” NAR reported.
Typically first-time home buyers makeup 40% of home sells, but these buys only made 30% of home purchases in June 2022, reported NAR. “Owning a home can create a path to financial freedom and lead to long-term wealth gains that families can pass on to future generations,” said NAR President Leslie Rouda Smith.
“First-time buyers account for 30% of the market, which is still suppressed. Historically, this is typically closer to 40%. This is a different market.” – @JessicaLautz #NARForecastSummit pic.twitter.com/JyjPLOLOs4
— NAR Research (@NAR_Research) July 27, 2022
U.S. home builder confidence fell 12 points from June to July, which is the second largest single-month drop in the Housing Market Index (HMI) history, according to the National Association of Home Builders (NAHB).
KPMG economist Yelena Maleyev told The Hill in July that it is no shock home builders are anticipating demand to decline, “especially because of these unsustainable prices.”
“At the same time, [Builders are] still facing the same hurdles they faced before – long lead times, supply chain bottlenecks, inflation in their inputs, lack of labor, lack of land,” Maleyev said.
As inflation continues to soar and all indicators point to the U.S. being in an active recession, economists warn the Federal Reserve’s decision to buy trillions of dollars worth of mortgage-backed securities and hike the interest rate will cause another U.S. housing market bubble, followed by a crash. (RELATED: The Fed Announces Another Rate Hike To Rein In Inflation, But Economists Aren’t Convinced)
“Last year, the Fed allowed inflation to get out of control and bubbles to form in the equity and housing markets by keeping interest rates too low for too long and by flooding the market with liquidity,” according to American Enterprise Institute senior fellow Desmond Lachman. “This year the Fed seems to be making the opposite mistake. By rapidly increasing interest rates and withdrawing market liquidity, the Fed risks precipitating a deep economic recession and the bursting of the asset price bubbles.”
The U.S. housing market got priced to 3% mortgage rates. Now it’s finding equilibrium at 5.5% rates.
It puts bubbly markets at risk of double-digit home price declines.
— Lance Lambert (@NewsLambert) July 19, 2022
The current rate for a 30-year fixed-rate mortgage is 5.54%, up from 2.78% on July 22, 2021, according to lending giant Freddie Mac. NAR senior economist Nadia Evangelou said she expects these mortgage rates will average around 5.7% by the end of 2022, Forbes reported.
The Federal Reserve raised interest rates to curb inflation. Still, high-interest rates traditionally make it harder for borrowers to afford long-term loans, like mortgages, lowering the demand on supply.
“With mortgage rates up, it’s really just put a lot of buyers on the fence and into the rental market because they simply can’t afford mortgage payments,” Redfin chief economist Daryl Fairweather told The Hill. “A lot of buyers just can’t stomach [a 50% increased mortgage payment]. They’re either cutting their budgets for housing or going into the rental market.”