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Biden just mentioned the deflated housing market. What’s next for renters, buyers and landlords?

Affordable housing advocates and homebuilders are pushing President Biden to make another attempt to expand affordable housing despite partisan divisions in Congress.

During Biden’s State of the Union address on Tuesday night, the president announced a plan to end homelessness for veterans and issued a blanket call to “allow more families to access quality affordable housing.” .

But in a speech largely focused on lowering costs for households, the president devoted little time to escalating and debilitating spending for millions of Americans.

Biden had attempted to secure more than $150 billion for affordable housing expansion in the previous Congress but was unable to get enough support from moderate Democratic senators.

As Biden faces an even tougher road in a GOP-controlled House, supporters say there’s no reason to give up amid the rising costs families face on both rent and home loans.

Alicia Huey, president of the National Association of Home Builders (NAHB), said Biden “missed a golden opportunity … by failing to articulate his vision to combat the nation’s housing affordability crisis.” in a statement, although he praised the president for referring to the “critical issue.

“Alleviating the affordability crisis should be a top priority for the White House and Congress,” Huey said.

Is US real estate completely unaffordable?

The pandemic and the political response has accelerated trends that had long made housing unaffordable for many Americans, even those with stable jobs and substantial savings.

Latisha Clingerman, a special inspector for the Kansas state government, said she struggled to afford a home for years until she was able to purchase one in Wichita with help from Habitat for Humanity.

She said that despite paying her rent on time each month, she was unable to get approved for a traditional mortgage and felt mounting pressure as rents soared each month.

“As the cost of rent goes up, of course, everything else goes up. So I haven’t been able to really put any money away because I had four kids to take care of,” Clingerman said in an interview with The Hill.

“It was a constant ‘take from here to pay for this’ and never really being able to get savings,” he said.

And other homeowners, some of whom capitalized on historically low mortgage rates at the start of the pandemic shopping boom, have been negatively impacted by the chaotic market.

Homeowners collectively lost $1.5 trillion in equity capital from May to September 2022.

Clingerman, now a homeowner of 11 years, was able to avoid the strain of higher interest rates thanks to Habitat for Humanity’s low limits on mortgage costs.

But she said two of her children are currently struggling to find an affordable apartment to rent in Wichita, where rents rose 1.8 percent last month alone, according to Apartment List.

“It would be nice to see if [lawmakers and the president] could find a way to cap those interest rates, because that’s what really gets people going,” Clingerman said, and “find a way to make it ‘easier for would-be buyers to get approved for mortgages’ if people pay the ‘rent for years on time.”

The gap between black and white homeowners is the same as it was in 1968

Even so, advocates are urging lawmakers to act on systemic issues impacting access to not only affordable but also equitable housing.

“It is important to note, rather, that affordable housing alone does not equate to fair housing without effective enforcement of our nation’s robust housing and fair lending infrastructure,” Nikitra Bailey, executive vice president of the National Fair Housing Alliance, an organization dedicated to ending housing discrimination, he told The Hill.

“Equitable access to housing without discrimination is essential to creating equitable opportunities,” Bailey said.

Bailey added that fair housing practices are critical to closing the racial wealth gap in the United States. She noted that there is a persistent 30% difference in home ownership rates between black and white Americans.

This is the same disparity that existed when the Fair Housing Act was passed in 1968.

To close the gap, NFHA is calling for a variety of fair housing initiatives, including $250 million in funding for fair housing assistance programs to ensure implementation at the state and local levels.

NFHA is also pushing for a Down Payment Assistance (DPA) program aimed at first-generation homebuyers.

“And that’s very critical, because what it takes into account is that older generations have been locked out of the homeownership opportunity, and if we fully invest in a robust first-generation DPA program — we asked for $100 billion — we could make grow home ownership by 5.2 million new home buyers,” Bailey said.

Has the real estate market already collapsed?

The US is short by at least 1 million homes in one of the most volatile housing markets in a decade. And since the start of the pandemic, both rents and home purchase prices have soared.

These factors combined with high mortgage rates have pushed prospective home buyers to the sidelines and back into the rental market. Many of those affected are first-time or first-generation homebuyers.

And while home prices have begun to fall slightly under the weight of higher mortgage costs, the combination of slightly lower selling prices with much higher interest rates has left some homeowners unable to upgrade or downsize as needed.

“Rising mortgage rates have meant that many families were barred from buying homes and would-be buyers remained renters,” Moody’s analysts Lu Chen and Mary Le wrote in a research note.

“As a result, the demand for apartments has increased and rates have skyrocketed. As the disparity between rent growth and income growth widens, American wallets are feeling financial strain as wage growth tracks that of rents,” they wrote.

What makes a house “unaffordable”?

A house is generally considered unaffordable if a family has to spend more than 30% of its income on it.

Depending on a variety of factors, including median household income and various local market forces, what actual income looks like across the country can vary widely.

Recent data shows a decline in housing affordability in recent years both by the standard definition and by a measurement of the number of homes affordable to a median income earning household in the nation.

The NAHB-Wells Fargo Housing Opportunity Index released last week found that housing affordability is at an all-time low.

According to the index, just over 38 percent of new and existing homes sold between October and the end of December were affordable to families earning $90,000 a year.

Rental and house prices soared to new highs

Home prices had risen steadily for more than a decade before the pandemic hit and accelerated rapidly when a combination of trillions of dollars of federal stimulus and extremely low interest rates from the Fed fueled a surge in housing demand.

The sharp rise in house prices has also put pressure on rents, which have skyrocketed amid booming housing demand and a lack of long-term construction.

Americans now spend an average of 30 percent of their income on rent, according to Moody’s Analytics. Last year marked the first time the US has been burdened with rents nationwide since Moody’s began tracking rent-to-income ratios more than 20 years ago.

“The past few years have definitely shone a spotlight on the accessibility crisis in a way that wasn’t the case before the pandemic,” Apartment List analyst Rob Warnock said in an interview with The Hill.

While rents also started to decline towards the end of last year, “compared to where we were before the pandemic, the markets are still very expensive,” Warnock said.

Some housing relief may be on the horizon

Relief, however, may be on the way soon for some parts of the country.

Housing affordability is already making strides on the rental side of the market, with prices rising at the slowest pace in 20 months. A new report from real estate brokerage Redfin shows median asking rents nationwide increased 2.4% to $1,942 in January. This is the smallest increase since May 2021.

“We are watching closely to see if rents start declining year over year. It would be a welcome relief for renters because that hasn’t happened since the start of the pandemic,” Redfin chief economist Daryl Fairweather said in a news release.

“If rents start to fall year-over-year, that means renters have more room to negotiate,” Fairweather added.

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