Housing that is affordable remains a continual challenge in the United States, and faces renters at almost every income level, with the exception of the ultra wealthy; and while it can be had, most people face higher prices, but both the rental market as well as home ownership is becoming a deep concern, especially for those living in higher priced locations on the East and West coasts.
The major obstacle for home ownership are high interest rates, established by the Federal Reserve Board to fight inflation, but it has also affected the rental market by increasing rents for new renters, while offering them incentives but preserving rents for them and those existing renters.
Additionally, economic uncertainty, basic affordability, and a tight inventory are also factors, and with the resumption of federal student loan payments in October are creating a perfect storm in the quest for affordable housing.
Demand has exceeded inventory in most areas, and while there has been an increase in new construction, often these are targeted to upper income renters, or owners, leaving many in the middle class struggling.
As a result of the rise in interest rates the traditional 30 year fixed mortgage has ballooned from a previous low of 5 percent to now just hovering at 7.3 percent, from late August, the most recent figures available.
At the mid September meeting by the Federal Reserve Open Market Committee, it was decided to not raise interest rates, but an increase at the end of the year is a strong possibility, say many economists, and Fed watchers.
Forbes Magazine, on their website, reported, “Year over year existing home sales sagged in July for the second consecutive month, slipping by 22 % to a six month low, with all four major U.S. regions posting year over year steep declines, according to the National Association of Realtors (NAR).”
As is well known, the target goal, said Federal Reserve Chair Jerome Powell, is two percent inflation, making potential buyers wary of what’s coming, as he continues the bank’s efforts to bring inflation down.
There is caution, said Keith Gumbinger, vice president at mortgage website HSH.com, who told Forbes, “right now, it’s more about what the Fed intends to do rather than what it does,” and “[W]hile not meaningless, another quarter point hike at this point won’t change the big picture much, as a lot of the 'damage’ from higher interest rates is either done or is already in process.”
Some markets have seen a decrease in rents, compared to a year ago in an analysis by CNBC.com, these areas “have not shown negative annual growth in well over a decade. When they did, it was due to a recession hitting demand.”
Now, impacted by those high interest rates for home ownership, there is a 94 percent occupancy rate in the rental market, and the deleterious effect on older residents, and millennials who are priced out of home ownership; and, while there is an increase in construction for rental properties, there is not enough of it to make a dent, and what has been created is mainly for high income earners.
Other sources, mainly CoStar Analytics, show that there is some negativity in the rental market, but it is limited, and has mostly been seen in parts of the Southwest, and in some Southeastern parts of the US, such as Austin, Texas, Phoenix, plus Jacksonville and Miami, Florida.
Other areas, such as the Midwest are showing increases, and this is especially seen in Chicago, which is showing high increases, where rents are now 3.6 percent over the market average of 1.2 percent, according to local real estate columnist Don DeBat.
New rental construction is, according to current figures, at 13,000, reaching an expansion of only 2.3 percent; and, again on the higher end, resulting in a substantial rent increase for existing tenants.
It should be noted that the average rent in the US is $2,052, and the vacancy rate is 6.3 percent, as tracked by the St. Louis Federal Reserve using Census Bureau data.
For those people living at the poverty level, or those who have to spend more than 30 percent of their income on housing, their situation is severely strained. The cost burden as given by the Institute of Housing Studies at DePaul University in Chicago gives a bleak picture where both renters and homeowners are often forced to compromise on health care, and healthy food.
They also face a diminishing housing supply, especially in two and four unit buildings owned by private landlords who while offering below market rates, also own older properties where maintenance costs can be expensive; and, this is especially true in Black and brown communities.
The National Low Income Housing Coalition has stated that, “no state has an adequate supply of affordable rental housing for the low income renters,” and now with the increasing numbers of migrants, that creates further strain, especially in large metropolitan areas.
They also cite the figure of 293,354 renters that fall short of affordable and available for existing low income renters, and for those renters that are severely cost burdened, the current percentage is 73 percent.
In brief, the U.S. is short 7.3 million of affordable and available rental units. And, on the ownership side many of them are over 65 years of age, are of color, and struggle with many of the same issues that renters do.
It’s impossible to predict how these numbers will play out for the future, and as lawakers, and other officials struggle to meet the challenge, the interplay between local and federal government will be crucial.
Outstanding Article
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