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First-time homeowners are experiencing severe macroeconomic headwinds as mortgage rates and fees rise, while higher rents make it harder to save for a down payment.
Why it matters: Home ownership is the foundation for building wealth over the long term for middle-class Americans. If people can’t afford houses, this American aspiration may become less attainable.
- In addition, homes give a sense of security. Saying you have fixed-rate debt isn’t the equivalent of having your homeowner pull your hair every year. (However, there are many unexpected costs—take it from me, a man who just received a $2,000 bill to replace a corroded pipe.)
Three factors prevent people from falling into the trap.
Rising rents: Rents rose 0.8% in the past month alone, according to the government’s latest consumer price index — “the biggest monthly increase since April 1986.” They were also up a staggering 5.8% year on year.
- This is a problem for anyone trying to raise enough cash to back up – eg broader inflation.
Rising rates: If the Federal Reserve raises interest rates to fight inflation, interest rates will rise in kind.
The going rate this week for the average 30-year fixed-rate mortgage is 5.5%, compared to nearly 3% at the end of last year.
- On a $350,000 loan, that’s a difference of $1,987 in monthly payments versus $1,476 – or $6,132 per year. Oh (And as Axios’ Emily Peck points out, other sources point to higher rents.)
Rising prices: The average home has increased by $507,800 over the past four years, according to the U.S. Census Bureau. Compare that to the first quarter of 2020 — before the COVID-19 pandemic — when the average homeowner changed hands for $383,000.
- Real estate company ATTOM recently found that “median prices for single-family homes and condos will be less affordable in the second quarter of 2022 compared to historical averages for 97% of those counties nationwide with sufficient data to analyze.”
- The cost of owning a home — including maintenance and other items not paid directly to tenants — is at the “highest level since the second quarter of 2007” on ATTOM, another reason that can discourage first-time homebuyers.
Yes, but: At least one trend is pointing in homebuyers’ favor: More listings are coming on the market, helping to lower prices by increasing supply.
- “The national inventory of active listings grew 18.7% last year” in June, according to Realtor.com.
- Compared to June 2020, however, this number decreased by 34.1% and compared to June 2019 by 53.2%. half compared to June 2019.”
- And fewer homes are being built, exacerbating the long-term housing shortage. The flip side: from a purely financial perspective, home ownership isn’t always all it’s cracked up to be. “We all know people who buy a house and then regret it,” Felix Salmon previously wrote on Axios. “As Americans delay home ownership, they are more aware of potential failures, more attuned to the idea that their home can be a liability instead of an asset.”
Reference Source: Axios
