5 reasons why housing is so expensive right now

As inflation, rising gas prices and other rising costs strained people’s wallets, housing continued to be a challenge for buyers and renters.

Over the past year, the median home price has jumped more than 15%, according to data compiled by the St. Louis Federal Reserve. And renters are feeling the same pain: On average, rents in May were up 15% from a year earlier, according to Redfin, but in some cities, like Austin, Nashville or Seattle, the rise has more than doubled.

All this makes it increasingly difficult to find and find accommodation. And while it appears to have been exacerbated in recent months, house prices have been steadily rising for a decade, making home ownership and affordable rentals out of reach for many.

Here’s a look at some of the factors contributing to the tough housing market and who’s being hit the hardest.

Inflation and Mortgage Rates

In the first quarter of 2021, the median home price in the United States was $369,800, according to the St. Louis Federal Reserve. By the first quarter of 2022, the median home price had jumped to $423,600.

As inflation rose — with the consumer price index hitting a 9% year-over-year increase in June, the highest in more than 40 years — the Federal Reserve began raising rates of interest. This has led to higher mortgage rates, which are the product of inflation and interest rates, said Daryl Fairweather, chief economist at real estate brokerage Redfin. “As inflation has gone up, that means anyone who lends money knows they won’t really get back the real value unless they charge a higher price. [mortgage] because money in the future will not be worth as much as money today with inflation.

The result has been steep and costly increases. According to Freddie Mac, the average rate on a 30-year fixed-rate mortgage has nearly doubled since this time last year, from 2.8% in June 2021 to 5.52% in June this year.

This slightly cooled the demand for houses and, consequently, house prices. But what people can save on the purchase price could be wiped out when you factor in mortgage rates, which at their current levels could add nearly $100,000 to the cost of a $200,000 mortgage. $ over 30 years.

Wages

While inflation is a recent factor, house prices have risen since the bottom of the housing crash of 2012.

Buying a home is out of reach for many people whose wages have not kept up with inflation and general price increases. A February 2022 report from the National Association of Realtors found that a household earning between $75,000 and $100,000 a year could afford about half of the active real estate listings.

In 2020, the median household income level was $67,521, according to census data analyzed by the Federal Reserve. For people in this income bracket, the options quickly dwindled – they could only afford 34% of the available housing stock. Only “35% of whites, 25% of Hispanics, and only 20% of black Americans have incomes over $100,000,” according to the report.

Amid soaring prices, many potential buyers are essentially left with two options: rent where they are or move elsewhere.

Buying a house in a more affordable neighborhood may seem attractive, but could be untenable for those who have to live where they work. Additionally, buying a home in a different market creates its own ripple effects.

Graphic by Jenna Cohen/PBS NewsHour

If a potential buyer lives in San Francisco, “where the median home price is $1.5 million, and you move to Sacramento where it’s more like $450,000, that’s a huge savings,” said Fairweather. “But what happens then is that house prices in Sacramento go up and people who live in Sacramento for rent, for example, face a lot more competition. Their property taxes, probably taxes, are also going up. And so the inhabitants are priced and they have to move to the next most affordable metro again.

Even small apartments are too expensive for low-income workers, according to the National Low Income Housing Coalition. In 2021, a worker would have to earn $24.90 an hour to afford a “modest two-bedroom apartment,” the NLIHC wrote in a recent report. While some states and cities have minimum wages above the federal minimum of $7.25 an hour, no worker anywhere in the country who earns a state, federal, or local minimum wage for a 40-hour workweek hours can currently afford “a modest two-bedroom rental home at a fair rent, according to the report.

“Housing at the bottom of the rental market,” said Steve Berg, vice president of programs and policy for the National Alliance to End Homelessness, “has continually grown much faster than incomes at the bottom of the market. salary”.

The biggest issue in the cost of finding accommodation is supply. According to Freddie Mac, the United States has a shortfall of 3.8 million units needed to meet current demand.

“Builders haven’t built enough to keep up with demand,” Fairweather said. “We had fewer homes built in the 2010s than in any decade dating back to the 1960s. buying a house.

Graphic by Jenna Cohen/PBS NewsHour

Washington, DC, for example, was about 156,000 units short of what it needed in 2019, according to a new report from Up For Growth, a nonprofit dedicated to ending the housing shortage. And over the past decade, Phoenix, Boise and Salt Lake City lost 5% of what they needed that year, according to the report.

“Someone compared it to a game of musical chairs, you know, you’re left out,” Berg said. “They don’t get left behind because they run slowly. They are left out because there are not enough chairs.

Although federal housing assistance is available, primarily through the Housing Choice Voucher program, the program cannot provide assistance to everyone who needs it, Berg said. Under this program, the federal government pays part or all of the rent for low-income families, people with disabilities and seniors.

“It is funded in such a way that around a quarter of people who need help actually get help. And the other three-quarters are on a waiting list, sometimes waiting years to get into the program,” Berg said.

Out of area

The best solution, Berg said, is for communities to build modest rental housing. But local zoning laws can be significant barriers to this. “There’s a phenomenon called NIMBYism, not in my backyard, where people who have already bought a home, a single-family home, often don’t want their neighborhood to change” with the addition of smaller, more affordable homes, a said Fairweather.

When zoning restricts new, higher-density construction, it can drive up house prices and rents, and force some people out of their homes altogether. A 2020 study by the Government Accountability Office found that, all things being equal, a $100 increase in median rent was associated with a 9% increase in the estimated homelessness rate in the United States.

The big picture

Housing in America has generally been used as a means of creating wealth. But in a housing crisis where some cannot find housing within their means or at all, there are also generational financial and socio-economic consequences, experts say.

“If housing is the main source of wealth and it’s passed down from generation to generation, then it’s really important to know whether or not your grandparents were able to buy a house in, say, the 1950s. or 1960 before the Civil Rights Act was passed,” Fairweather said.

These implications for generational wealth may also exacerbate the racial wealth gap, notes a 2021 Brookings study.

“Homeownership is often seen as the gateway to the American dream and the gateway to intergenerational wealth. However, this path is often less feasible for black Americans who have a homeownership rate of 46.4% compared to 75.8% for white families,” the study notes. “Homes in predominantly black neighborhoods across the country are valued $48,000 less than predominantly white neighborhoods for a cumulative loss in equity of approximately $156 billion. These are important factors that contribute to the racial wealth gap.