Home Ownership Elusive As Rise In Cost Of Mortgage Payments Far Outpace Wage Growth

Tyler Durden's Photo
by Tyler Durden
Monday, Nov 15, 2021 - 08:10 PM

Authored by Petr Svab via The Epoch Times (emphasis ours),

For Americans seeking to buy a home, this year has likely brought much frustration. A nexus of several natural and man-made factors culminated in the tightest residential real estate markets in recent memory.

While median wages increased by 4.3 percent October-to-October this year vs last, typical mortgage payment (30-year fixed rate with 10 percent down payment) increased nearly 17 percent, according to the National Association of Realtors (pdf). That means an average American worker earning about $4,300 a month would need to spend nearly $1,400 a month on a typical mortgage payment. And that’s before income taxes, social security taxes, Medicare taxes, property taxes, home insurance, and utility bills.

There are signs the situation may get better, but it’s not clear how much better.

The Perfect Storm

With the Covid-19 pandemic and government restrictions tied to it, the economy took a giant hit last year. Normally, that would be expected to send home prices tumbling, but this was different. Prices slightly dipped for one quarter before bouncing back, and they have been going up ever since, federal housing department data shows.

The Federal Reserve responded to the recession by slashing rates, issuing loans, and buying up large amounts of securities. As a result, mortgage rates dropped. But that ultimately didn’t make houses more affordable. Sellers were asking more and buyers were willing to pay.

With the initial pandemic lockdowns, a large portion of city dwellers headed for the country, seeking safety from the pandemic, as well as respite from draconian restrictions implemented in response to it. For some, it was a catalyst to leave the city for good. For many it was supposed to be a temporary move until offices opened back up, but as government restrictions dragged on into 2021 and many employers signaled at least some remote work would stay for good, permanently moving and working from home became attractive. Many were looking for less crowded living—a nice home with a yard or land.

Accustomed to exorbitant rent in the city, these COVID-19 refugees came with relatively deep pockets. An average one-bedroom apartment in New York City rents for $3,100, according to Zumper. Putting the same money into a mortgage could fetch a $500,000 mansion upstate.

At the same time, lumber prices skyrocketed, curbing the boom in new construction.

Buyers ended up in bidding wars, snatching at first opportunity whatever decent house became available. In the summer, a typical home would stay on the market for just two weeks. A truly nice home would vanish much faster.

The market has cooled off a bit in recent months. But if a plateau has been reached, it’s a harshly elevated one. Median sale price in the 3rd quarter topped $400,000, compared to less than $330,000 before the pandemic.

Lumber prices have dropped sharply in recent months, but not nearly to pre-pandemic levels. Soft lumber producer price index was nearly 33 percent higher in October than in January 2020.

The future of home prices remains uncertain. Companies expect many more workers to come back to the office, though many times only for a part of the work week. But that’s unlikely to bring back to the city all those who’ve already uprooted themselves. Moreover, city rents have been bouncing back toward pre-pandemic levels or even higher.

Then there are broader considerations. The Biden administration has signaled plans to impose climate restrictions both on construction and finance, which could push new home prices higher still. Meanwhile, hundreds of thousands of illegal aliens have been entering the country, all of whom will also need housing.

With inflation hitting a 30-year high in October, the Fed announced it will somewhat tighten its monetary policy, which is expected to push mortgage rates up and inhibit demand.

National Association of Realtors Chief Economist Lawrence Yun expects existing-home sales prices to keep rising next year, albeit “at a slower pace of 2.8 percent,” the report said. New home sales price would go up by 4.4 percent, it predicted, “as demand eases due to higher mortgage rates.”

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.