During the early proceedings of the Republican National Convention, the immense video screens flanking the stage flashed the iconic shot of construction workers framing a new home.
It’s an image that carries with it a number of positive emotions — family, community, good jobs and the pursuit of the American dream.
It suggested, for a brief moment, that housing might even become a prominent theme during the gathering. The subject was mentioned by both former President Donald Trump and his running mate Sen. JD Vance (R-Ohio), who lamented the tough environment currently for young people hoping to buy a home.
The negative references are warranted. According to a Redfin economist, “a perfect storm of inflation, high prices, soaring mortgage rates and low housing supply caused 2023 to go down as the least affordable year for housing in recent history.”
And so far, 2024 is not looking much better.
To be fair, the global pandemic was a shock to the system impacting every industry that caused significant supply chain disruptions. The ripple effect of that once-in-a-lifetime calamity is still felt today. COVID-19 re-valued residential real estate and caused a seismic shift in the way we work.
But as we emerge from that crisis, the hurdles facing potential homebuyers have continued to grow and make it more difficult to narrow the racial homeownership gap that improved slightly during pandemic-era lower interest rates.
According to a recent report from the Joint Center for Housing Studies at Harvard University, “the rise in prices has pushed the median sales price to about five times the median household income.” In May 2021, the median price of an existing home was $283,000; three years later it reached a record high of $419,300.
But it gets worse. The same report cites March 2024 data showing that “the median monthly mortgage principal and interest payment on home purchase mortgage applications” shot up “more than $852 over the last three years.” Factoring in property taxes and insurance, the report notes, payments have increased so much that “the all-in monthly costs of the median-priced home in the U.S. are the highest since these data were first collected more than 30 years ago.”
The National Association of Home Builders recently released a homebuyer preference survey showing that the median price buyers expected to pay was about $307,000. Only 20 percent in that survey said they expected to pay $500,000 or more, yet 37 percent of homes are priced at $500,000 or more, according to the Census Bureau.
The National Association of Home Builders concluded that, on the lower end of the price spectrum, the share of prospective and recent buyers exceeds homes being built in those price ranges. Meanwhile, on the higher end, the share of homes being built exceeds the share of buyers in the market at those prices.
A large part of the supply-demand mismatch is the cost of new home construction. Builders understand that a market exists for new homes priced under $150,000, but they just cannot build homes at such a low cost.
A significant barrier is outdated and sometimes misguided regulation. A study by the same organization's research department concluded that regulation accounts for $93,870 of the cost of the average new single-family home. The problem includes high impact fees, inefficient land use policies, permitting red tape and building codes that are needlessly restrictive.
The cost of regulation is passed on to potential first-time homebuyers already stymied by low housing inventories.
The dearth of available homes for purchase today is exacerbated by a restricted level of existing inventory, dominated by current homeowners with mortgage rates below 5 percent who are unwilling or unable to move to a new home. According to the New York Times, this “lock-in effect” is “paralyzing people in homes they may wish to leave — on a scale not seen in decades.”
Redfin data for existing homeowners in 2023 shows that 78.7 percent have a rate below 5 percent, 59.4 percent below 4 percent, and 22.6 percent below 3 percent. Many of these borrowers are beginning to believe they might be living in their retirement homes regardless of their age.
According to the National Association of Realtors data, sales of existing home sales in 2023 were the lowest in 30 years; in June they were at the slowest annual pace since October 2010, even below May 2020 during the throes of a global pandemic."
The deep desire of millions to become homeowners does not escape the notice of those running for office everywhere. We need a thoughtful and very real commitment to achieve a rebirth of the American Dream of homeownership from both sides of the aisle.
Achieving a reliable supply of affordable housing has always required a broad, combined spectrum of players including from the private, public and nonprofit sectors. Housing is unique in the way the private sector helps to provide access to the market to underserved communities and fuels government lending programs. Perhaps we should consider them more as partners than regulatory targets.
At the federal, state and local levels, we need to be serious about finding solutions that will put homeownership in reach again for millions of first-time buyers. Collaboration is needed now more than ever to lead a rebirth of the American Dream of homeownership in 2025 and beyond.
Brian Montgomery is a former deputy secretary of the Department of Housing and Urban Development. He is the only individual to have served twice and under three presidents (George W. Bush, Barack Obama and Donald Trump) as commissioner of the Federal Housing Administration.
