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At the end of 2021, there were 411,000 fewer homes on the market that were affordable for households making $75,000 to $100,000 a year, compared to the end of 2019, according to a study released 7 February by the National Association of Realtors (NAR).
Households in that income category could afford 51 percent of the houses for sale in December, the NAR said, compared to 58 percent two years earlier.
That 7-point drop was not as bad as the 8-point loss by households earning $100,00 to $125,000, which could qualify for only 63 percent of homes for sale at the end of 2021 instead of 71 percent, as they could on 31 December, 2020.
At 2019’s close, there was one affordable home on the market for every 24 households earning $75,000 to $100,000, NAR figures showed.
By the end of 2021, that number was one affordable home for every 65 households earning in that bracket.
The study assumed that buyers would qualify for a 30-year, fixed-rate mortgage and spend no more than 30 percent of their income to pay for principal and interest, property taxes, and homeowner’s insurance.
The 30-percent figure is one benchmark lenders typically use to determine a potential buyer’s ability to afford a home.
Since 2019, affordability has worsened for every income group other than the wealthiest, while the shrinking number of homes on the market made it harder to buy a home for every income group, the NAR found.
The number of homes for sale was smaller than usual before the COVID era began; then people seized on low mortgage rates and the chance to work from home to flood into the housing market, driving up prices and slashing availability, especially for starter and mid-price homes.
The COVID War also made lenders more cautious about who to grant mortgages to, favoring buyers with lofty incomes and huge cash down payments.
Those locked out of the housing market found themselves in a double bind: the cost of rent was soaring with demand, and higher rents left them less able to save the cash needed to make a down payment on a house.
“At the end of the day, there are fewer houses that you can afford,” Nadia Evangelou, NAR’s director of forecasting said to The Wall Street Journal. “You have fewer options.”
In the fourth quarter, the typical monthly mortgage payment for a single-family home rose to $1,240, from $1,039 a year earlier, NAR said.
TRENDPOST: Among the factors adding to the shortage of houses that modest- and middle-income families can afford has been private equity firms’ entry into the residential real estate market.
We have documented the trend extensively: as home prices rose, private equity firms began snapping them up, often snatching a house from a family that already had made an offer.
The firms then rent the houses back to the failed buyers at premium rental rates.
This tactic has reconfigured the housing market for years, and perhaps generations, to come.
Renters are paying top rates because the U.S. is in the midst of a long-term housing shortage. Materials, labor, and especially land to build new houses are in acute short supply.
TREND FORECAST: Demand for rental homes will keep prices high, making it harder and harder for renters to save enough cash to make a down payment on a home for which the price is now at record levels.
This is likely to create at least one generation of renters instead of homeowners, depriving these households of the main way in which Americans build and store wealth: by creating equity through home ownership.
To trace the development of this trend and explore its meaning, see our past coverage:
- “Blackstone Extends Reach Into Housing Market” (29 Jun 2021)
- “Residential Rental Rates Skyrocketing” (10 Aug 2021)
- “Rents Soar as Investors Buy Properties and Raise Rates” (14 Sep 2021)
- “Investors Now Targeting Off-Campus Student Housing” (14 Sep 2021)
- “Rents Soaring. What’s Next?” (21 Sep 2021)
- “Single-Family Rental Homes: Investments Galore” (16 Nov 2021)
- “Home Sales Up as Money Gang Gobbles Up Houses” (23 Nov 2021)
- “Rents on the Rise” (11 Jan 2022)
And, the cost of materials continues to drive up home prices. While lumber prices are down from their highs, they are rising once again… up nearly 30% for the month, which is consistent with a broader rally in global commodity prices.