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The dream of owning a home is out of reach for 4 million Americans


Although rapidly rising mortgage rates already appear to be cooling overheated housing markets, they are making the dreams of homeownership even further out of reach for millions of Americans, researchers and housing industry experts have said. .

The income needed to qualify for a home has skyrocketed: Mortgage, property tax and insurance payments for a median priced home of $340,700 cost $700 more per month in April 2022 than a year earlier . And the annual income needed to qualify for such a home is $28,000 higher in April 2022 than last year, according to Harvard’s Joint Center for Housing Studies, which analyzed data from Freddie Mac and the National Association of Realtors.

It cost about 4 million renters in the past year alone, said Daniel T. McCue, senior research associate at the Joint Center for Housing Studies.

“If the door closes on affordable homeownership, it would lock in some significant inequalities in housing,” he said during a panel discussion on the report on Wednesday.

The tale of two real estate markets

Economic gains made before the pandemic; the benefits of financial stimulus and moratoriums on foreclosures and evictions during the pandemic; and a strong labor market; has not only helped keep people in their homes, but also provided other Americans — especially older millennials and people of color — with the financial means to become homeowners.

But in March 2022, home prices rose 20.6% year-over-year — the biggest jump in 30 years of record-keeping, according to charts from the Joint Center for Housing Studies. CoStar data and CoreLogic Case-Shiller Home Price Indices. Rents have also increased, especially for single-family homes that have served as remote offices for families during the pandemic.

This has caught the attention of investment firms, which have been buying moderately priced homes in booming markets and then renting them out or flipping them for a profit. Investor holdings accounted for nearly 30% of all homes sold in the first quarter of this year, Harvard Housing Studies researchers noted, citing data from CoreLogic.

New construction has also increased, but the majority of these new homes have sold for more than $400,000, putting them out of reach for first-time home buyers, the researchers said.

The growth in homeownership, however, has not been sufficient to narrow the gap in long-standing systemic racial disparities. At the start of 2022, homeownership rates for Black and Hispanic households were 45.3% and 49.1%, respectively. By comparison, white households had a homeownership rate of 77%, researchers wrote, citing data from the US Census Vacant Housing Survey.

Rising home values ​​and record interest rates at the heart of the pandemic have further widened the already drastic wealth gap between homeowners and renters, as well as racial inequality, the study found.

“People trying to buy their first home, families trying to get out of renting [housing] into something more affordable … the current market is not working for this demographic,” said Alanna McCargo, president of Ginnie Mae, the federally owned mortgage funder.

Adding heightened concern, she said, is not just the rising rates of evictions and foreclosures after pandemic-related moratoriums were lifted, but also the impact of inflation.

“We have to be very intentional about not leaving people behind,” McCargo said.

Massive imbalance between supply and demand

Moratoriums on evictions and foreclosures put in place in 2020 have helped ease the financial strain on many households, but some have not yet been able to cope, according to the Harvard study.

About 10% of households were behind on their rent or mortgage payments during the period from December 2021 to April 2022. The share of tenants behind on payments was 14.5% compared to 6% for landlords, according to Researchers.

“Households are going to be housed very precariously, and we may even see an increase in homelessness as a result of this, which is already increasing in many communities,” said Sarah Saadian, senior vice president of public policy at the National Low Income Housing Coalition, adding that it is already at a “crisis point”.

At the center of that is a massive imbalance between supply and demand, said Ryan Marshall, president and CEO of Atlanta-based homebuilder PulteGroup. Marshall noted that higher construction costs, supply constraints, and strict land use policies have discouraged development.

“Existing municipalities and current residents don’t want new neighbors,” he said. “They have their piece of heaven, and they don’t want new friends, and that’s the sad reality of the world we live in today.”

Researchers from the Joint Center for Housing Studies noted that a potential solution could come from the Biden administration’s housing supply action plan, which aims to increase affordable housing options through funding for national reforms and local authorities, adding requirements for federally owned housing to revert to the owner. occupants and help the private sector address supply chain challenges. Another option, they noted, are state efforts such as density-promoting land use changes in states such as California and Oregon.

The dream of owning a home is out of reach for 4 million Americans
As the Federal Reserve seeks to dampen housing demand and curb inflation by raising rates, there is little it can do to address lingering constraints on the number of homes available for sale, the Fed Chairman Jerome Powell in testimony before the Senate Banking Committee. Still, he warned, rising mortgage rates could ultimately prevent people from becoming homeowners.

The Federal Reserve does not directly set the interest rates that borrowers pay on mortgages, but its actions influence them. Mortgage rates tend to follow 10-year US Treasuries. But mortgage rates are indirectly affected by the Fed’s actions on inflation. When investors see or anticipate rate hikes, they often sell government bonds, driving up yields and, with them, mortgage rates.

If monetary policy were to tighten and cause an economic slowdown, that would present an even greater concern, Harvard researchers wrote.

“With so many households financially stressed by high housing costs, a severe downturn could turn the recent spike in housing insecurity into a wave,” they wrote.

CNN’s Matt Egan and Anna Bahney contributed to this report.


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