The lack of affordable housing continues to be a “pain point” for too many Americans, Lael Brainard, the director of the National Economic Council, said before the Urban Institute on June 20.
Over the past three years, rents have surged 21 percent, and median home prices have soared as much as 40 percent. Despite a strong labor market and higher wage gains, Ms. Brainard conceded that “housing costs have been extremely difficult for many households.”
“Costs and, particularly, affordability of housing costs, remains a pain point for too many Americans,” she said.
“The president knows that housing costs are a critical part of every family’s budget,” Ms. Brainard added. “He has a comprehensive plan to lower housing costs for families.”
She highlighted various public policy efforts endorsed by President Joe Biden to bring relief for homeowners, first-time homebuyers, and renters.
In recent months, President Biden has unveiled multiple new tax credits to make purchasing a home more affordable.
One of the tax credits is a $10,000 refundable mortgage-relief credit that would target first-time middle-class homebuyers. Another one-year $10,000 tax credit would nudge people to place a “For Sale” sign on their starter homes and price the property below the area’s median home price.
Ms. Brainard further championed legislation—Tax Relief for American Families and Workers Act of 2024—offering tax credits to facilitate new housing construction activity. This, she said, would help build 200,000 additional affordable units and help address the 15 years of underbuilding.
House Ways and Means Committee Chairman Jason Smith (R-Mo.) supported the legislation because “American families will benefit from this bipartisan agreement that provides greater tax relief.” He also urged his colleagues in the Senate to approve the bill.
However, some Senate Republicans are concerned that Democrats are attempting to stuff too many things into the legislation.
Sen. Mike Crapo (R-Idaho), the Senate Finance Committee ranking member, dismissed the “take it or leave it” efforts.
White House Targets Housing Affordability
Ms. Brainard is one of many administration officials who have participated in nationwide events this month to promote the president’s housing agenda.Treasury Secretary Janet Yellen, for example, will travel to Minnesota on June 24 to highlight the administration’s housing agenda.
In his State of the Union address earlier this year, President Biden suggested that some of his economic proposals could alleviate affordability challenges that had been in the making for years.
“I know the cost of housing is so important to you. If inflation keeps coming down, mortgage rates will come down as well. But I’m not waiting,” the president said.
Various departments and agencies have also dedicated billions of dollars in funding to bolster housing supply.
Meanwhile, the White House is reviewing a proposal by mortgage giant Freddie Mac to purchase second mortgages. This plan would extend second-lien mortgages to push homeowners locked in low-rate mortgages to access their home equity.
It has garnered mixed reviews.
“Freddie Mac’s proposal is more borrower-friendly because it would allow the borrower to retain their first mortgage, with its attractive rate, while tapping into their home equity,” the Urban Institute stated in its briefing last month.
Mark A. Calabria, the chief economist under then-Vice President Mike Pence and the senior adviser to the Cato Institute, warns that Fannie Mae will likely follow suit and put taxpayers at risk.
The top reason, he says, is that Freddie Mac is “dangerously leveraged” and does not possess the capital necessary to take on the level of risk. The federal agency already backs approximately $3.5 trillion in mortgages and maintains a net worth of $50 billion.
“Not only would such be inconsistent with the administration’s legal obligations but it would also intentionally put the taxpayer and countless families at considerable risk,” he wrote.
State of the US Housing Market
More Americans, across demographics and party lines, say the lack of affordable housing is a “significant problem” for the United States, a new study by the Bipartisan Policy Center found.Over the past few years, housing affordability has eroded as a combination of tight supplies, high mortgage rates, and above-trend inflation have weighed on homeowners and prospective homebuyers.
The Federal Reserve Bank of Atlanta’s National Home Ownership Affordability Monitor (HOAM) Index—a measurement of median-income households being able to absorb the estimated annual costs of owning a median-priced home—is nearly 30 percent below the affordability threshold.
Recent Redfin data show median home prices are at a record high of $396,000, with the median monthly mortgage payment at $2,781. In January 2021, Redfin data showed the median home sale price was $319,000, indicating a 24 percent jump in this span.
The National Association of Realtors also reported that median existing-home prices are even higher, rising to $419,300 last month. In January 2021, the median existing-home sales price was $303,900, representing a 38 percent increase.
The Washington-based bipartisan think tank found that nearly two-thirds (65 percent) say home prices in their community have become less affordable in the last year. A little more than half (52 percent) think the trend will persist.
In today’s above-trend inflationary environment, more households are struggling to keep up. Thirty-two percent of adults earning an annual income of under $50,000 report having difficulty covering their monthly expenses, such as utility bills.
Over the past year, 17 percent have missed their mortgage or rent payments. Moreover, 49 percent of renters confirm struggling to pay their rent.
According to the Bipartisan Policy Center report, two new trends are forming: an increase in homelessness and dwindling interest in homeownership.
Fifty-two percent of survey respondents reported a jump in homelessness in their community in the past year, up 6 percentage points from the May 2023 study.
Forty-seven percent of renters expressed interest in owning a home, down by 10 percent from the September 2022 survey.
This is not a left-right issue because there is widespread concern among Democrats (83 percent), independents (71 percent), and Republicans (68 percent), researchers noted.
“This is yet another data point demonstrating strong bipartisan concern about high housing costs and strong bipartisan support for Congress taking action to improve housing affordability,” Dennis Shea, executive director of BPC’s J. Ronald Terwilliger Center for Housing Policy, said in a statement.
Researchers discovered that at least half of Republicans and Democrats support various public policy proposals to address housing affordability, such as increasing funding for homelessness services and expanding the Low-Income Housing Tax Credit.
Optimism Ahead
Economists and market experts say that relief is on the way.The latest Freddie Mac Primary Mortgage Market Survey revealed that the 30-year fixed-rate mortgage averaged 6.87 percent, marking the third consecutive weekly drop.
“These lower mortgage rates coupled with the gradually improving housing supply bodes well for the housing market,” said Sam Khater, the chief economist at Freddie Mac. “Aspiring homeowners should remember it’s important to shop around for the best mortgage rate as they can vary widely between lenders.”
Since February 2022, active housing listings have rocketed 122 percent, according to Realtor.com data.
Still, estimates show that as many as 7.2 million new homes would be needed to eliminate the housing shortage.
Looking ahead, Norada Real Estate Investments forecasts that home prices will increase in the next five years, but at a slower pace.
“The rapid rise in home prices that we saw in recent years is likely to slow down in the next few years. However, home prices are still expected to rise, albeit at a more moderate pace,” the group wrote in its five-year housing market forecast released on June 16.
