Homeownership is the pathway to wealth. Most aspire to work hard and live the American Dream by becoming proud homeowners. It is not a Republican or Democrat issue, it is an American issue, a common ground despite political beliefs. In recent years, we have seen this goal and aspiration fade away. The stress on the housing market decline is not based on feelings or sentiment, it is based on facts and data.
The Trump campaign put out a video on August 28, 2024 titled “Kamala Harris has COMPLETELY DESTROYED the housing market…”1 The video presented news clips with supporting data describing how home ownership has become unattainable for average Americans. This presentation is in line with what I presented in my WarRoom interview on Augst 27, 2024. The Trump campaign video has the finger on the pulse of average Americans who want to own a home but can’t afford it.
As was presented on WarRoom, Americans are faced with a drastic decline in affordability in the last 3 to 4 years. Mortgage rates during the Trump administration were at record lows around 3%, but with inflation on the rise, mortgage rates have soared and are currently hovering around 7%. For every 1% increase in mortgage rates, a potential homebuyer loses about 9% of buying power. This is an astonishing number when you put it into perspective. This means that when rates were 3%, if you were able to afford a $500,000 home, now with rates at 7% you are only able to afford a home in the low to mid-$300,000 range.
Not only have high mortgage rates affected the affordability for most Americans, soaring home prices due to low inventory has further put a strain on the housing market. Recent Fannie Mae statistics unveiled that 62% of existing homeowners had mortgage rates of less than 4%. There is no surprise that now with rates at 7%, many existing homeowners are staying put. They are not giving up their low mortgage rates for higher payments, and you can’t blame them. As a result, the supply of homes for sale has been depleted to record low levels while the demand has not decreased at the same rate. As a result, more demand is vying for fewer homes resulting in multiple offers and soaring home prices.
The affordability index measures what percentage of income must be earned for someone to purchase a median-priced home. During the Trump administration, chart of the affordability indices in New Jersey as reported by the New Jersey Association of Realtors (NJAR) for July 2024 were over 100% and even reached levels near or at 160%. The current NJAR data for July 2024 has an adorability index of 74%. That means that Americans are only making 74% of what they need to afford a median-priced home. The data for NJ is a microcosm of what is seen around the nation, particularly in the West and Northeast regions of the country that are predominantly run by Democratic administrations. The National Association of Realtors (NAR) reports that in August 2024, the affordability index for the Northeast is 84.3% and the West is 68.6%, whereas the Midwest is 119.2% and the South is 97.9%. Overall, the NAR affordability index dropped from 148.2% in 2021 to 93.3% currently.
Qualifying income is directly proportional to the affordability index. NAR qualifying income to purchase a median-priced home was a mere $57,888 in 2021 and now a whopping $110,544.
First-time homebuyers are facing the most challenges with qualifying to purchase a home. First-time homebuyer affordability index was at 97.6% with qualifying income of $55,774 in 2021, but currently the first-time homebuyer affordability is 62.5% with qualifying income of $106,464. There is no surprise that just as the Trump campaign presented in the housing video, many Americans and especially first-time homebuyers do not believe that they can afford a home and believe that their dream is out of reach.
We need to restore confidence back to the housing market. That confidence can only be restored with overall economic changes - make the United States energy independent, reduce interest rates, incentivize homeowners to sell their homes to increase the supply, reducing the cost of goods and debt, providing high paying jobs, cutting regulations, providing tax relief to individuals and business owners, and showing strength on the world stage. Trump asserts that his administration “will make home ownership attainable for average American once again…”. If the past is any indication, Trump will restore prosperity back into the housing market, make home ownership a viable goal, and get Americans on the path to wealth building again.
August 31, 2024
By Sophia Georges
Copyright 2024 - Realsophy Real Estate, Sophia Georges
