Trying to buy a home is ‘playing an unwinnable game’

When Nathan Wilkins moved back in 2019 with his mother and sister, he hoped it would help him save money to buy a home.

But in the years since, the U.S. housing market has been transformed by rising rents, rising home prices and massive increases in mortgage rates.

The 32-year-old insurance adjuster from Utah says she and her sister are making more money than ever. But spending $2,500 (£1,960) a month on rent won’t leave much to spare.

“It’s like I’m playing a game you can’t win,” he says. “The fact that we’re being priced out makes me want to throw up.”

Such frustrations are spreading, fueling discontent and contributing to widespread pessimism about the U.S. economy ahead of the country’s upcoming elections.

The Average home sales price It’s up nearly 30% since the end of 2019 in the U.S., reaching $420,000 this spring.

And that doesn’t factor in additional costs from higher interest rates, which are now roughly 7% for a 30-year fixed-rate mortgage common in the U.S., which was 3% in 2020.

Today’s homebuyers need an annual income of more than $100,000—compared with the national household median of more than $75,000—to afford a home in most parts of the U.S., according to research firms. Zillow And Bank rate Say, and face the monthly payments Approximately doubled In just four years.

“It makes me cry a little bit,” says Megan Holder, who started buying in Austin, Texas, in 2019 when banks offered her a 30-year fixed rate of about 4.75%.

She halted her search when the epidemic hit, and the high cost of building materials and housing drove up prices.

He and his wife finally bought a house this year, but only after swallowing a 6.625% rate — and moving 1,200 miles north to Columbus, Ohio, a location he’d chosen from a spreadsheet he’d created on a budget.

“A 30-year-old who switched jobs from the public to the private sector to build affordability has topped what we’ve considered for five years.

“We have moved mountains to make that possible.

“I’m always grateful that we can afford it. I know a lot of people can’t,” she adds.

40.1% of renters hope to someday own a home New York Federal ReserveThe share is the smallest since the bank began asking tenants in 2014.

Even homeowners, whose long-term mortgages protect them from immediate financial impact and benefit from rising property values, Tell the pollsters Changes in the market are a source of concern — as they raise property taxes and insurance costs, moving less affordability.

A A recent Harris Poll More than 70% of Americans believe the market will get worse.

The issue feeds into widespread concerns about the rising cost of living, which is set to rise by 20% from 2021.

It is one of the biggest challenges facing President Joe Biden, whose tenure in office has coincided with a turnaround in the housing market and who has received poor ratings for his handling of the economy in national elections.

Outperforming challenger Donald Trump has sought to blame Mr Biden for inflation, and while he does not usually call out housing specifically, he regularly highlights “skyrocketing” interest rates to argue that the economy is headed in the wrong direction.

“Inflation has been a political tightrope for Biden in recent years,” said Brian Connolly, a business law professor at the University of Michigan who focuses on housing issues. “Housing costs are another place where people are experiencing this financial pressure.”

In recent months, the White House has tried to address concerns about affordability, offering programs such as rules to limit closing costs and a $10,000 tax credit for first-time homebuyers.

It marks a shift in tone after years of focusing on the strength of the economy, including low unemployment. But with Mr Biden having few immediate levers to pull, it’s not clear the efforts are resonating.

His support has eroded, especially among young people — his record turnout in 2020 helped propel him into office. Voters in this demographic are less likely to own homes and often consider housing affordability a top concern.

“I haven’t seen any site that’s purposefully looking out for someone like first-time homebuyers, wanting to ease their pain,” says Brayden Dougherty, 30, of Florida. for three years.

Despite a $50,000 inheritance, no debt, and decent jobs, he and his wife couldn’t find an affordable two-bedroom near their families in the Orlando area.

The housing affordability issue is too big to blame on any one politician or party, but the lack of solutions has contributed to his broader political frustration, he says. It’s unclear how he will vote in November.

“I’m tired,” he says. “Home is part of that.”

The growing outcry has raised pressure on the U.S. Federal Reserve to cut interest rates to provide relief, a move Federal Reserve Chairman Jerome Powell has said may be at some point.

But expectations that a cut earlier this year would help improve the country’s mood have been gradually scaled back. That said, progress in reducing inflation — which stood at 3.4% in April, still above the bank’s target of 2% — may stall.

Instead, mortgage rates mostly rose since January.

Mimi Tan, 29, who recently bought a three-bedroom condo in the Boston, Massachusetts area, says she and her husband are running about $200 more in monthly expenses than when they were pre-approved for a loan in March.

Then they don’t lock in the rate, and unknowingly borrowing costs can change significantly. When they returned to the lender in April after making the offer, the interest rate they were offered had gone from 6.5% to 6.9%.

She hopes they allow her to refinance later this year.

“I check the rates with interest,” he says.

Many analysts believe it is only a matter of time until inflation eases, clearing the way for a cut.

Reports from private firms show rent increases — which play a large role in calculations of U.S. inflation — are cooling from the pandemic’s sharpest pace amid an uptick in apartment supply.

With rising wages, an increase in new homes under construction and a slow rise in rents and home prices, he also sees an easing of affordability challenges despite no election in November, says Orphe Divounguy, senior economist at housing site Zillow.

“It works itself out,” he says. “Of course we still have a long way to go, but we’re seeing some progress and I think we’re going to see more progress.”

But there is a darker view.

As more people are priced out of home ownership, rental rates may show more elasticity than expected, pushing up inflation.

If mortgage rates don’t drop significantly, the change in borrowing costs could act as a long-term constraint on supply, as builders pull back and homeowners who secured mortgages move when rates are low.

Bryden, a Florida native, sees no easy fix from the central bank, which he fears helped shape the current crisis by allowing rates to stay unusually low in the decade after the 2008 financial crisis.

“No matter what happens — whether they raise, lower or hold — I feel like the next decade is going to be tough for most people no matter what,” he says.