The record run-up in home prices and rents exacerbated the affordable housing crisis in the US, and rising interest rates stand to make it even worse, according to Harvard University's annual State of the Nation's Housing Report released Wednesday.
Although quickly rising mortgage rates are already appearing to cool overheated housing markets, they are putting the homeownership dreams of millions of Americans even further out of reach, researchers and housing industry experts said.
The income needed to qualify for a home has skyrocketed: The mortgage, property tax and insurance payments for a median-priced home of $340,700 cost $700 more per month in April 2022 than they did a year before. And the annual income needed to qualify for such a home is $28,000 higher in April 2022 versus last year, according to Harvard's Joint Center for Housing Studies, which analyzed data from Freddie Mac and the National Association of Realtors.
This has priced out about 4 million renters over the past year alone, said Daniel T. McCue, senior research associate at the Joint Center for Housing Studies.
In March 2022, home prices rose 20.6% year-over-year — which was the largest jump in 30 years of record-keeping, according to Joint Center for Housing Studies. Rents shot up as well, especially for single-family homes that served as remote office spaces for families during the pandemic.
That caught the eye of investment firms, which snapped up moderately priced homes in booming markets to then rent out or flip for a profit. Investor holdings accounted for nearly 30% of all homes sold during the first quarter of this year, Harvard's housing studies researchers noted.
New construction increased as well, but the majority of those new homes sold for more than $400,000, putting them out of reach for first-time home buyers, the researchers said.
"Folks that are trying to buy their first homes, families that are trying to transition from out of rental [housing] into something more affordable ... the market right now is not working for that demographic," said Alanna McCargo, president of Ginnie Mae, the federally owned mortgage backer.
Adding increased concern, she said, are not only the rising rates of evictions and foreclosures after pandemic-related moratoriums were lifted, but also the impact of inflation.
While the Federal Reserve seeks to soften demand for homes and curb inflation by raising rates, it can do very little to address ongoing constraints on the number of available homes for sale, Fed chairman Jerome Powell said Wednesday in testimony before the Senate Banking Committee. Still, he cautioned, rising mortgage rates could ultimately price people out of homeownership.
Should monetary policy tighten and spur an economic downturn, that presents an even greater concern, Harvard researchers wrote.
"With so many households financially stressed by high housing costs, a serious downturn could transform the recent uptick in housing insecurity into a wave," they wrote.