The Increasing Difficulty of Homeownership

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According to Tom Barkin, president of the Federal Reserve Bank of Richmond, the U.S. housing market is posing a significant challenge for aspiring homeowners. In a speech in Hampton, Va., Barkin emphasized that homeownership is “becoming increasingly unattainable for too many workers.”

Barkin pointed out that even teachers, for example, are finding it difficult to make the math work. The median wage for a middle-school teacher in 2022 was just over $60,000. At that income level, affording a home without becoming cost-burdened would be possible up to a purchase price of $228,000. However, the median price of a new starter home last year was $71,000 higher than that, making it even harder for teachers to enter the housing market.

Adding to the challenges, the housing market is currently grappling with high mortgage rates and a persistent shortage of available homes. This combination has led to intense competition among buyers and subsequent increases in home prices. As a result, housing affordability has reached its lowest point since 1984.

For instance, the 30-year fixed-rate mortgage remains far above the pre-pandemic level of 4%, standing at over 7.5%. Additionally, the median national sale price of a home in September was $412,502, marking a 2.2% increase from the previous year, as reported by real-estate brokerage Redfin.

The combination of elevated mortgage rates and rising home prices has created substantial hurdles for prospective homeowners in the United States. As the housing market continues to pose challenges, it becomes crucial to address and find solutions to improve housing affordability.

The Cooling of Rent Growth: Exploring the Housing Crisis

Even though rent growth has slowed, it is important to note that rents are only cooling after a period of sharp increases. According to Apartment List, rents fell by 1.2% in October compared to the previous year. While there has been a slowdown in rent growth from the staggering rate of 18% witnessed in 2021 and 2022, the median rent still remains high enough to offset the surge.

The Challenging Math of Renting

“The math for renting also isn’t great,” acknowledges Barkin. To illustrate this point, let’s consider the example of a teacher searching for a place to live. If this same teacher was looking for a rental property last year, they would have had to spend approximately $1,643 per month, which was the median asking rent at that time. However, today that figure has increased to $2,011 — a significant 22% increase.

“We need to make the math work better, both for homeownership and renting,” Barkin asserts.

Solutions to the Housing Crisis

In response to the soaring costs of housing, the president of the Federal Reserve (‘Fed’) proposed a wide range of solutions. These potential remedies aim to bring down housing costs and increase affordability. One of the suggestions involves building more housing to meet the rising demand. However, this requires navigating opposition from those who resist zoning changes intended to allow for denser housing. Additionally, Barkin advocates for tax incentives offered by counties to encourage developers to construct more housing options.

Another recommendation put forth by Barkin is for local governments to streamline permitting processes and reduce unnecessary regulations to motivate developers.

“We all understand that housing availability is a limiting factor in our communities. The key to overcoming this challenge is to increase the supply,” emphasizes Barkin. “This is ultimately a math problem — but one where potential solutions are beginning to multiply.”

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