Yahoo Finance Will Homeownership Soon Be a Thing Only the Rich Can Afford?
According to the latest Federal Reserve Survey of Consumer Finances, the median home value is now 4.6 times the median family income. As the gap between wages and home values continues to increase, will we reach a point where only the wealthy will be able to buy homes?
Learn More: In Less Than a Decade, You Won’t Be Able To Afford Homes in These ZIP Codes
Check Out: 4 Genius Things All Wealthy People Do With Their Money
Here’s a look at how we got to the current affordability crisis, plus predictions about what the future holds.
Why Housing Has Become Unaffordable for Many Americans
If you currently don’t own a home — and don’t think you will ever be able to — you’re not alone.
“The reality today is that the dream of owning a home is becoming increasingly challenging, especially for middle-income families,” said Jason Mudd, managing partner of Cindy Raney & Team, a Coldwell Banker Global Luxury Partner. “On a national level, only 25% of homes on the market are priced within reach for families earning a median income.”
Trending Now: 8 Places Where Houses Are Suddenly Major Bargains
There are a few factors that have led to the current scenario.
“Current mortgage rates and a competitive market environment — widening gap, supply versus demand — is exacerbating the affordability crisis,” Mudd said. “In many parts of the country, we have what’s known as a ‘lock-in effect’ whereby homeowners are reluctant to trade out of their current mortgage rate (less than 4%) into a much higher one (7%+). What this lock-in effect does, effectively, is to limit the supply of homes on the market.
“When you factor in that new housing starts over the past 10 years have lagged, it creates a dramatic overall lack of available inventory for the buyer pool,” he continued. “With limited supply, and many people anxious to purchase, you create a supply/demand gap that drives home prices higher.”
Those hoping that a drop in interest rates will solve the affordability crisis will likely be disappointed.
“While there is optimism that interest rates will fall, the core issue of affordability persists,” Mudd said. “Economic uncertainties like inflation and slower economic growth only compound the issue, further straining a buyer’s budget.”
The Way Homeownership Looks Will Likely Evolve
We may reach a point where traditional, single-family homes are reserved for those with above-average salaries.
“If the economic pressures of high mortgage rates and home prices do not ease, the dream of homeownership could remain elusive for many, potentially stoking further generational divides and reshaping future housing policies,” said Greg Clement, CEO of Realeflow, a real estate investing software solution.
This means we may need to broaden our views of what “homeownership” looks like in the future.
“The tension between the demand for affordable, innovative homes and the escalating market prices suggests a brewing storm,” Clement said. “If current trends persist, we might see a surge in alternative housing solutions, such as co-housing communities and multi-family units. Additionally, the financial strain could accelerate the development and acceptance of prefabricated or modular homes, which promise a faster, potentially cheaper route to homeownership.”
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Will Homeownership Soon Be a Thing Only the Rich Can Afford?
