The American Dream of Homeownership: A Faded Photograph
Remember that classic image of a smiling couple with two kids, a dog, and a house surrounded by a white picket fence? It symbolized homeownership – a desirable and highly attainable aspect of the American Dream. But today, that picture-perfect vision has become a badly faded photograph.
What’s Making Homes Unaffordable?
A confluence of factors is keeping homeownership out of reach for middle-income families: inventory challenges, weak wage growth, high mortgage rates, and increased maintenance costs, just to name a few major ones. Let’s look at the impact of each.
Lack of Supply
While housing inventory has been inching up recently, we’ve been facing a serious shortfall of supply for quite some time – as much as 5.5 million homes, according to some estimates. That’s largely due to a decline in new builds that dates back to 2008, when the subprime mortgage financial crisis triggered the Great Recession.
Stagnant Wages
While the pandemic-frenetic pace of sales has eased of late, home prices continue to rise, hitting all-time highs month after month. And they’re increasing faster than wages for many Americans, creating a widening affordability gap. Want to buy the typical median-priced home? "Median" now means $400,000+ – so good luck if your W-2 doesn’t report six figures in wages. That’s a sobering thought, given that the median salary in the third quarter of 2024 was only $60,580, the Bureau of Labor Statistics reports.
Expensive Mortgages
Most people don’t pay for a home outright, of course – they finance it. And that brings us to another problem: the high cost of borrowing. Super-low (think 2%-3%) during the pandemic, mortgage rates began rising dramatically in mid-2021, when the Federal Reserve started increasing interest rates to combat inflation. They’ve softened some since, but stayed stubbornly high overall. In fact, despite the Fed’s rate cuts in September and November, mortgage rates climbed to 7% for the first time since the summer.
Climbing Ownership Costs
It’s not only getting more expensive to buy, but also to own a single-family home in the U.S. Bankrate’s 2024 Hidden Costs of Homeownership Study calculates it costs over $18,000 a year to maintain the old (or new) homestead, up 26% from just four years ago.
The Long-Term Impact of Unaffordable Homes
Add all these factors together – the shortage of homes, the high prices and down payments, rising interest rates, and ongoing ownership costs – and you have a perfect, if unsavory, recipe for a home affordability crisis. As middle-income families try to balance all the aforementioned challenges, their financial outlook is grim.
Conclusion
The American Dream of homeownership is surrounded by walls that keep getting higher and wider for the middle class. We have to understand the impact – both immediate and long-term – of housing unaffordability and look for solutions to it – sooner rather than later. Until we do, an increasing number of families will find themselves on the wrong side of that idyllic white picket fence.
FAQs
Q: What’s causing the housing shortage?
A: A decline in new builds and an increase in the price of building materials, leading to a lack of supply.
Q: Why are wages stagnant?
A: The pandemic-frenetic pace of sales has eased, but home prices continue to rise faster than wages, creating a widening affordability gap.
Q: What’s causing the high cost of borrowing?
A: Super-low mortgage rates during the pandemic, followed by rapid increases in interest rates to combat inflation.
Q: How much does it cost to maintain a home?
A: Over $18,000 a year, according to Bankrate’s 2024 Hidden Costs of Homeownership Study.
Q: What’s the long-term impact of unaffordable homes?
A: A perfect recipe for a home affordability crisis, with middle-income families struggling to balance the challenges and their financial outlook being grim.
