With all the talk of inflation, the housing market only recently has started getting the attention that it deserves with its role in the inflation that plagues our nation. Realsophy Real Estate has been reporting the housing data for months stressing the surging housing prices and loss in affordability as a major concern among Americans which has now resulted in a major issue among voters in the upcoming Presidential election. The Consumer Price Index (CPI) is a measure of the cost of goods and services by households and representative of the inflation level. It is reported that in the last month that CPI is heavily influenced by housing costs accounting for more than 70% of core CPI gain in the last year. CPI showed the smallest increase since February 2021, but don’t let that number give you a sigh of relief – housing affordability is a major concern with no end in sight and needs policy change not subsidies to reverse course.
CPI had the smallest increase since February 2021. It rose 0.2% for the month of August and 2.5% during the last 12 months. Although core inflation looks to be subdued, it would be much improved if housing prices and costs were controlled. There is no indication that the housing prices will begin to cool off. Housing prices and rent rose 0.5% marking the fastest monthly gain since January 2021.
There is growing speculation that the Fed will make a small interest rate cut of 0.25% to try to rein in the inflation. However, this small rate cut will do little to alleviate the pressures on inflation due to the housing costs. The two main drivers of the housing costs are (1) the record low home inventory and (2) the reduced number of new construction homes. Freddie Mac reported that mortgage rates from 2017 to 2021 fell 32% from 4.1% to 2.8%, whereas from 2021 to date mortgage rates rose 134% from 2.8% to 6.5%. Homeowners are continuing to stay put due to the low mortgage rates locked in their homes. New home construction has dropped by 0.9% from the previous year mostly affected by building cost and supply and regulations.
Housing affordability has become a top issue in this election. As we know presidential elections are decided by the battleground states. Here are how the home prices in the battleground states – Pennsylvania, Wisconsin, Michigan, Nevada, Georgia, and Arizona - have changed from January 2021 to July 2024:
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BATTLEGROUND STATES CHANGE IN HOME PRICE FROM JANUARY 2021 – JULY 2024 |
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|
State |
Home Price January 2021 |
Home Price July 2024 |
% Change Home Price |
|
Pennsylvania |
$213,000 |
$271,000 |
+27% |
|
Wisconsin |
$241,000 |
$305,000 |
+27% |
|
Michigan |
$192,000 |
$250,000 |
+30% |
|
Nevada |
$328,000 |
$445,000 |
+30% |
|
Georgia |
$232,000 |
$334,000 |
+44% |
|
Arizona |
$316,000 |
$443,000 |
+40% |
Pennsylvania has a housing rental crisis. There is a shortage of affordable housing evidenced from the statistics that for every 100 low-income renters there are 38 units available. It is projected that from 2022 to 2032 to lose 35,000 units despite government funding. Furthermore, Pennsylvania Association of Realtors is reporting record high home prices with a 77% dissatisfaction from Millennials that rent is too high.
Wisconsin Association of Realtors is reporting the affordability index at an all-time low. From May 2023 to May 2024, the affordability index dropped 11.3%.
Michigan is stifled by low rental affordability. The median income is $39,000 whereas the median rent is $42,000.
Georgia has emerged as Atlanta having one of the fastest rent and home price increases. From 2018 to 2023, rent increased 38% and home prices increased 65%.
Arizona has been labeled as one of the 10 least affordable states for homebuyers. In just a short time from 2022, the affordability index dropped 28.61%.
In order to reduce the CPI indicator for inflation, Fed policies must change to fix the drastic decline of the housing market witnessed since 2021. It is multi-faceted and important to look at it from a wide all-encompassing lens rather than a myopic view. Even if you give first time homebuyers the Democrat proposed $25,000 as a down payment on a home, the homebuyer’s affordability does not change. They will be unable to afford the home and only result in foreclosure and rent arrears. You cannot build homes fast enough in an already depleted new construction market. It will require bold fiscally responsible policy to restore confidence back to the Trump prosperity in the housing market.
September 12, 2024
By Sophia Georges
Copyright 2024 - Realsophy Real Estate, Sophia Georges
