Millions of Americans are already shut out of buying a home, and the cost of buying one continues to rise.
In past decades, it was common to find a house that cost roughly three times a buyer’s annual income. But that ratio has skewed sharply since the COVID-19 pandemic, with home prices up a whopping 47% since early 2020. Median home sales prices last year were about five times the median household income, according to tabulations in a newly released report by the Harvard Joint Center for Housing Studies, and there are signs it could get worse.
The double whammy of high prices and high mortgage rates has “left homeownership out of reach to all but the most advantaged households,” says Daniel McCue, a senior research associate at the center.
Yes their home value has gone up also, but because everything else has risen by the same margins, something that used to be just a bit out of their price range is now much much further outside of it.
Even equivalent properties are more expensive because they often need work on top of the price, and even if they don’t, the closing costs and cut to realtors are proportionally higher and that doesn’t count toward equity. And folks in V-LCOL areas can’t really move to areas that aren’t equally depressed, because houses in other areas are even more wildly expensive, so we are scraping the lowest cost of the bottom of the low cost barrel already. There’s nowhere to really go like people from HCOL areas can.
So say someone wants to move to the next town over for whatever reason. They have to pay to have their house sold, which is a percentage of sale for whatever dumbass reason (8-10% on average), then the closing costs, inspections, etc. for the place they are buying (2-5%), and that eats right into the equity of the existing house, meaning they have to find something 10-15% lower in absolute terms if they want to come out unencumbered, which used to be a pretty small actual difference but now is pretty substantial (for example, 10% of my purchase price is about 6k, with the current state of things I’d be looking at about 20k) The alternative option is to take out a mortgage for the price difference, at a huge interest rate. But the price increases over the last few years could easily make that mortgage the same as their original mortgage on the place from a decade ago.
So on paper the house is worth more, but because everything else also is, and wages aren’t up, it’s a much larger difference for the buyer than it used to be.