The American Dream of homeownership has been an integral part of the country's culture and identity for decades. However, in recent years, the combination of higher borrowing costs and still-elevated home prices has created one of the least affordable housing markets in modern history for would-be buyers.
The housing market has been on a rollercoaster ride in the last decade. After the 2008 financial crisis, housing prices declined sharply, leading to a significant number of foreclosures and a glut of homes on the market. However, over the last few years, the market has rebounded, and housing prices have risen significantly. The pandemic has further accelerated this trend, as low-interest rates and a shortage of available homes have driven prices even higher.
However, this increase in prices has come at a time when borrowing costs have also risen. Mortgage rates, which were at historic lows in 2020, have started to increase, and are expected to continue to do so over the next few years. Higher borrowing costs mean that the cost of buying a home is even more expensive, as buyers have to pay more in interest charges.
The combination of higher prices and higher borrowing costs has created a situation where homes are out of reach for many would-be buyers. According to the National Association of Realtors, the median home price in the United States was $353,000 in January 2022, an increase of 18% from the previous year. Meanwhile, mortgage rates have increased from below 3% in 2020 to over 4% in 2022. These higher prices and borrowing costs mean that many people simply cannot afford to buy a home, particularly in areas with higher costs of living.
This lack of affordability has consequences for both individuals and the broader economy. For individuals, it means that they may have to continue renting, even if they would prefer to own a home. Renting can be more expensive in the long run, as renters do not build equity in their homes and are subject to rent increases over time. Furthermore, renters may find it more challenging to save for retirement or other long-term goals if they are paying high rents.
At the same time, the lack of affordability in the housing market has broader economic implications. A lack of affordable housing can make it harder for businesses to attract and retain employees, particularly in areas with high costs of living. It can also lead to more homelessness and overcrowding, which can increase healthcare costs and reduce the overall quality of life.
In response to these challenges, policymakers and industry leaders are working to find solutions that can increase affordability in the housing market. One approach is to increase the supply of homes, which can help to reduce prices over time. However, building new homes can be expensive and time-consuming, particularly in areas with high land costs or strict zoning regulations.
Another approach is to provide incentives for developers to build affordable housing, such as tax credits or regulatory changes that make it easier to build lower-cost homes. Additionally, some policymakers are exploring ways to make it easier for renters to become homeowners, such as through rent-to-own programs or down payment assistance.
In conclusion, the combination of higher borrowing costs and still-elevated home prices has created one of the least affordable housing markets in modern history for would-be buyers. This lack of affordability has consequences for both individuals and the broader economy, and policymakers and industry leaders are working to find solutions to increase affordability in the housing market. While there is no easy solution to this, we know that historically the markets are incredibly cyclical. I’m old enough to remember interest rates in the double digits and people still getting excited at owning a home for the first time. You may not be able to afford one of those crazy “McMansions” in today's market, but that doesn’t mean that there isn’t a home out there for you. Call our team today to find out more.