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In America, once the Land of Opportunity, renowned for its strong middle class, continues its economic divergence as the rich are getting richer and the rest keep getting poorer.
It’s in the numbers.
With U.S. home prices spiking, they are less affordable to Americans than at any time since the Panic of ’08. Now, the median U.S. household would need to spend 32.1 percent of its income to make mortgage payments on a home for which it paid July’s median price of $342,350, according to a study by the U.S. Federal Reserve Bank of Atlanta.
The bank’s calculations included mortgage principal, interest, taxes, insurance, and related costs.
The share of income that a mortgage payment requires grew at a rapidly astounding 23 percent rate from July 2020.
During that same period, the wages of the plantation workers of Slavelandia have risen just 3 percent, the bank said.
That proportion of income spent on mortgage payments is the most since November 2008, early in the Great Recession, when the figure climbed to 34.2 percent, the bank noted.
We have been documenting the disappearing American dream of home ownership for young and moderate-income families in “Home Prices Soar to 14-Year Record” (29 Sep 2020) and elsewhere.
Thus, first-time buyers will either have to sacrifice more of their incomes to own a home, buy a less desirable place to live, or follow the trend and continue to rent for the rest of their lives.
Potential buyers seem to agree: in August, 63 percent of consumers surveyed by the Federal National Mortgage Association, known as Fannie Mae, said this was a bad time to buy a house, compared to 35 percent a year earlier.
TRENDPOST: In August, the median U.S. home price had climbed to $356,700, according to the National Association of Realtors, a 4-percent gain from the month the Fed bank used to make its calculation. That means that in the month after the bank released its report, the amount a household needed to make the required payments would have claimed 33.4 percent of its income, edging even closer to the all-time record.
TREND FORECAST: Rising commodity prices, such as lumber, and available land will crimp the number of new housing starts for the foreseeable future.
Millions of potential homeowners will be forced to rent longer, perhaps permanently, as home prices stay aloft for the foreseeable future.
Demand for houses is washing over into the rental market, where prices also are in record territory, thanks in no small part to the trend of private equity companies buying houses in the most desirable real estate markets. We have documented this seizure of residential property by wealthy corporations in articles such as “Invitation Homes to Buy $1 Billion Worth of Houses This Year” (1 Jun 2021) and “Private Equity Partners Target $5 Billion in Rental Housing” (27 Jul 2021).
The inability to build equity in a home will be a key reason why future generations will be poorer than past ones.