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The dream of owning a home is beyond the reach of 4 million Americans

Although rapidly rising mortgage rates already seem to be cooling down overheated housing markets, they put the dream dreams of millions of Americans even further out of reach, said researchers and experts in the housing industry.

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

This has priced out around 4 million tenants over the past year alone, said Daniel T. McCue, senior researcher at the Joint Center for Housing Studies.

“If the door is closed for affordable home ownership, it will lock in some significant inequalities in housing,”[ads1]; he said Wednesday during a webcast panel discussion on the report.

A story about two housing markets

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

But in March 2022, house prices rose by 20.6% year-on-year – the biggest jump in 30 years of record keeping, according to the Joint Center for Housing Studies tables of CoStar and CoreLogic Case-Shiller Home Price Indices data. Rents also increased, especially for detached houses that served as external office space for families during the pandemic.

It caught the attention of investment firms, who bought moderately priced homes in booming markets and then rented out or turned around for a profit. Investor holdings accounted for almost 30% of all homes sold during the first quarter of this year, Harvard Housing Studies noted, citing CoreLogic data.

Construction workers are passing wooden planks during the construction of new apartments in Monterey Park, California.

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

However, the growth in home ownership has not been enough to close the gap between long-term, systemic racial differences. In early 2022, homeownership rates for black and Hispanic households were 45.3% and 49.1%, respectively. In comparison, white households had a home ownership share of 77%, researchers wrote, citing data from the US Census Housing Vacancy Survey.

The increase in home values ​​and record low interest rates during the heart of the pandemic further widened the already drastic wealth gap between homeowners and tenants, as well as racial differences, according to the study.

“People trying to buy their first homes, families trying to move from renting [housing] to something less expensive … the market right now is not working for that demographic, “said Alanna McCargo, president of Ginnie Mae, the federally owned mortgage lender.

Increased concern, she said, is not only the growing incidence of evictions and foreclosures after pandemic-related moratoriums were lifted, but also the impact of inflation.

“We have to be very conscious that we are not leaving people behind,” McCargo said.

Massive imbalance between supply and demand

Moratoriums on eviction and exclusion introduced during 2020 helped ease the financial burden on many households, but some have not been able to dig out yet, according to the Harvard study.

Approximately 10% of households were behind on rent or mortgages in the period December 2021 to April 2022. The proportion of tenants who were behind on payments was 14.5% against 6% for homeowners, researchers found.

“Households are becoming very insecure, and we may even see increased homelessness as a result, which is already increasing in many communities,” said Sarah Saadian, senior vice president of public policy for the National Low Income Housing Coalition. and adds that it is already at a “crisis point”.

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

“Existing municipalities and existing residents do not want any new neighbors,” he said. “They have their piece of paradise, and they do not want any new friends, and that is the sad reality of the world we live in today.”

The Joint Center for Housing Studies researchers noted that a potential solution could come from the Biden administration’s Housing Supply Action Plan, which seeks to increase affordable housing options through funding for state and local reforms, and add requirements for federally owned housing to go to the owner residents, and help the private sector cope with supply chain challenges. Another option, they noted, is state-based efforts such as density-enhancing land use change in states such as California and Oregon.

5 signs that the housing market is starting to decline
While the Federal Reserve seeks to curb demand for housing and curb inflation by raising interest rates, it can do very little to address ongoing restrictions on the number of homes available for sale, Fed Chairman Jerome Powell said Wednesday in testimony before the Senate Banking Committee. Still, he warned, rising mortgage rates could eventually price people out of home ownership.

The Federal Reserve does not set the interest rate borrowers pay on mortgages directly, but the actions affect them. Mortgage rates tend to follow 10-year US government bonds. But mortgage rates are indirectly affected by the Fed’s actions against inflation. As investors see or expect interest rate increases, they often sell government bonds, which sends higher returns and with it mortgage rates.

Should monetary policy be tightened and spur an economic downturn, it is an even bigger concern, Harvard researchers wrote.

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

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

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