Here’s what home buyers have heard for years: The housing market eventually would “normalize,” and if mortgage rates came down or inventory improved, that affordability would return to something resembling pre-pandemic levels like in 2019.
New data from Realtor.com suggests that market might never come back, and that returning to pre-pandemic affordability would require outcomes economists say are extremely unlikely, according to Fox Business.
A tougher reality for buyers is indicated by the numbers and as one expert pointed out: The nation’s housing affordability dilemma isn’t just cyclical, but is largely structural.
“It’s not a realistic benchmark. I think that the problem in the housing market is a structural problem that’s been going on for decades,” PMG Affordable Principal Dan Coakley told Fox News Digital.
“While it might appear that things were more affordable in 2019, this kind of march toward lack of affordability has been going on for a long time,” he said. “And it’s gonna take a long time to make a dent in it.”
Coakley added: “I don’t think that affordability is going to go all the way back to a point where people feel like it’s manageable.”
A recent Realtor.com report noted that in order for the U.S. housing market to feel affordable again, it would require mortgage rates falling to about 2.65%, median household incomes rising by roughly 56% or home prices dropping about 35%.
What Does Affordable Mean in America?
Realtor.com defines “affordable” as a mortgage payment equal to roughly 21% of median household income, compared with more than 30% currently.
“Just how radical those moves would be with respect to interest rates or home price depreciation or income increases, it just shows you how much work we have to do,” Coakley said. “I have to compliment the Trump administration now for really putting this into bright focus, because I think it’s going to be really necessary, and moving all of those levers as much as we can is going to be super, super important.”
Coakley said that he doesn’t see rates going below about 3% or even close to that level, but noted that median incomes have not kept up with surging rents and home prices.
“People at the lower income levels or middle income levels, even upper-middle income levels, have not been able to access and participate in that asset level appreciation that’s been so fundamental to the American dream and what’s driven people’s net worth,” he said.
“Increasing supply is probably one of the most important things we can do and that the administration can kind of foster to help in this crisis,” Coakley said. “Similar type moves — incentives, [subsidies] to incentivize a developer to build affordable for-sale product – would be very welcome in the sector.”
Is the U.S. Economy Healthy?
Coakley said that any attempts to fix one side of the equation often backfire because housing sits at the intersection of financing, wages, and long-term price trends that have outpaced incomes.
“You play with one lever, and you bring interest rates down too much, that’s probably an indicator that the economy is not healthy — and incomes aren’t going to keep up with the inflation that that might cause,” he said.
The Trump administration proposed last week two major federal housing policies that Coakley said he views optimistically: directing Fannie Mae and Freddie Mac to purchase up to $200 billion in mortgage bonds and proposing limits on large institutional investors buying single-family homes.
“Politicians on both sides of the aisle should be able to support [this],” the homebuilder said. “I think those are the kind of big structural moves that, actually, combined with other things, can actually move the needle… It just can be encouraging to people psychologically that they have an administration that understands what is fair and what is not fair.”
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