Biden barely mentioned the deflated housing market. What’s next for renters, buyers and owners?

Affordable housing advocates and homebuilders are pushing President Biden to take another crack at expanding affordable housing despite partisan divides in Congress. 

During Biden’s Tuesday night State of the Union address, the president announced a plan to end homelessness for veterans and issued a general call to “get more families access to affordable, quality housing.”

But in a speech largely focused on lowering costs for families, the president spent little time on an increasing and debilitating expense for millions of Americans. 

Biden had attempted to secure more than $150 billion for expanding affordable housing in the previous Congress but was unable to secure enough support from moderate Democratic senators.  

While Biden faces an even tougher road in a GOP-controlled House, advocates say it’s no reason to give up amid the rising costs families face for both leases and home loans. 

Alicia Huey, president of the National Association of Home Builders (NAHB), said Biden “missed a golden opportunity … by failing to lay out his vision to combat the nation’s housing affordability crisis” in a statement, though she praised the president for referencing the “critical issue. 

“Easing the affordability crisis should be a top priority for the White House and Congress,” Huey said.  

Is American real estate completely unaffordable?

The pandemic and policy response accelerated trends that had long kept housing unaffordable for many Americans, even those with steady jobs and sturdy savings. 

Latisha Clingerman, a special inspector for state government in Kansas, said she struggled for years to afford a home until she was able to purchase one in Wichita through the help of Habitat for Humanity.  

She said despite paying her rent on time each month, she was unable to be approved for a traditional mortgage and felt increasing pressure as rents spiraled higher each month. 

“With the cost of rent going up, of course, everything else goes up. So I was not able to really put money aside because I had four kids to take care of,” Clingerman said in an interview with The Hill. 

“It was a constant ‘taking from here to pay this’ and never really being able to get a savings going,” she said. 

And other homeowners, some of whom capitalized on historically low mortgage rates early in the pandemic buying boom, have been negatively affected by the chaotic market.

Homeowners from May to September 2022 collectively lost $1.5 trillion in equity. 

Clingerman, now a homeowner for 11 years, has been able to avoid the strain of higher interest rates thanks to Habitat for Humanity’s low caps on mortgage costs.

But she said two of her sons are currently struggling to find an affordable apartment to rent in Wichita, where rents rose 1.8 percent last month alone, according to Apartment List. 

“It would be nice to see if [lawmakers and the president] could figure out a way to cap these interest rates, because that’s what really gets people,” Clingerman said, and “find a way to make it” easier for would-be buyers to be approved for mortgages “if people are paying rent for years on time.” 

The gap between Black and white homeowners is the same as it was in 1968

Even so, advocates are urging lawmakers to act on systemic issues impacting access to not only affordable but also fair housing. 

“It’s important to note, rather, that affordable housing on its own does not equate to fair housing without effective enforcement of our nation’s robust fair housing and lending infrastructure,” Nikitra Bailey, executive vice president at the National Fair Housing Alliance, an organization dedicated to ending housing discrimination, told The Hill.

“Fair access to housing free of discrimination is essential to create equitable opportunity,” Bailey said.

Bailey added that equitable housing practices are vital to closing the racial wealth gap in the U.S. She noted that there is a persistent 30 percent difference in homeownership rates between Black and white Americans.

That is the same disparity that existed when the Fair Housing Act was passed in 1968. 

To shore up the gap, NFHA is calling for a slew of fair housing initiatives, including $250 million in funding for Fair Housing Assistance programs to ensure enforcement at the state and local levels.

NFHA is also pushing for a down payment assistance (DPA) program targeting first-generation homebuyers. 

“And this is very critical, because what it what it takes into consideration is that prior generations were excluded from homeownership opportunity, and if we fully invest in a robust first generation DPA program — we’ve called for $100 billion — we could grow homeownership by 5.2 million new homebuyers,” Bailey said. 

Has the housing market already crashed?

The U.S. is short at least 1 million homes amid one of the most volatile housing markets in more than a decade. And since the beginning of the pandemic, both rents and home purchase prices have soared.   

These factors combined with high mortgage rates have pushed prospective homebuyers to the sidelines and back into the rental market. Many of those affected are either first-time or first-generation homebuyers.  

And while home prices began falling slightly under the weight of higher mortgage costs, the combination of slightly lower sale prices with much higher interest rates has left some homeowners unable to upgrade or downsize as needed. 

“Rising mortgage rates caused many households to be priced out from home buying and would-be buyers to remain renters,” wrote Moody’s analysts Lu Chen and Mary Le in a research note.

“Apartment demand surged as a result and drove rates sky high. As the disparity between rent growth and income growth widens, American’s wallets feel financial distress as wage growth trails rent growth,” they wrote.

What makes a house ‘unaffordable’?

A home is typically considered unaffordable if a family must spend more than 30 percent of its income on it.

Depending on a variety of factors, including average household income and various local market forces, what the actual income number looks like across the country can vary widely. 

Recent data shows a decline in housing affordability over the last few years by both the standard definition and by a measurement of the number of homes affordable to a family earning the nation’s median income. 

The NAHB-Wells Fargo Housing Opportunity Index released last week found that housing affordability is at an all-time low.

According to the index, just over 38 percent of new and existing homes sold between October and the end of December were affordable for families earning $90,000 annually. 

Rent and housing prices have risen to new highs

Home prices had risen steadily for more than a decade before the pandemic struck and accelerated rapidly when a combination of trillions of dollars in federal stimulus and ultra-low Fed interest rates fueled a surge in demand for housing.

The steep increase in home prices also put pressure on rents, which skyrocketed amid the boom in housing demand and a long-term lack of construction. 

Americans are now spending an average of 30 percent of their income on rent, according to Moody’s Analytics. Last year marked the first time the U.S. was rent-burdened nationwide since Moody’s began tracking rent-to-income ratios more than 20 years ago. 

“The last few years have definitely shined a spotlight on the affordability crisis in a way that didn’t happen before the pandemic,” said Rob Warnock, analyst at Apartment List, in an interview with The Hill. 

While rents also began to decline toward the end of last year, “relative to where we were before the pandemic, markets are still really expensive,” Warnock said. 

Some housing relief may be on the horizon

Relief, however, could be on the way for some parts of the country soon. 

Housing affordability is already making strides on the rental side of the market, with prices rising at their slowest rate in 20 months. A new report from real estate brokerage Redfin shows nationwide median asking rents rose by 2.4 percent to $1,942 in January. This is the smallest increase since May 2021. 

“We’re watching closely to see whether rents start falling year over year. That would be a welcome relief for renters because it hasn’t happened since the onset of the pandemic,” Redfin chief economist Daryl Fairweather said in a press statement.  

“If rents do start falling on a year-over-year basis, it will mean that renters have more room to negotiate,” Fairweather added.