Rising home prices and the persistent problem of low inventory is having widely felt effects throughout the economy. But the impact is not being experienced equally across the economic spectrum, as many lower income, would-be buyers are getting priced out of the market.
While there have been some promising signs recently that the housing market is returning to a degree of normalcy, such as an uptick in the number of new and active listings, it remains a hot and expensive market. A recent study by the Harvard University Joint Center for Housing Studies reveals the stark disparities arising in the current housing market.
The executive summary of the June report states: “Households that weathered the crisis without financial distress are snapping up the limited supply of homes for
sale, pushing up prices and further excluding less affluent buyers from homeownership. At the same time, millions of households that lost income during the shutdowns are behind on their housing payments and on the brink of eviction
What this means in more detail is that while rates of home ownership have risen, the gap between black and white homeownership have remained largely unchanged. Last year, that gap was at 28%. The national price-income ratio has also risen to the highest level since 2005. Across the country, the price of homes is growing faster than most families’ incomes.
And the price of homes is certainly rising.The Wall Street Journal reported this week that the median home price in June rose to a record-setting $363,300. This is an increase of 23.4% from June, 2020. This is up from the median price of $350,300 recorded in May.
The chief driving force behind the ever-soaring prices rests primarily in the combination of low supply and low mortgage rates. The country has long had a deficit on housing supply, which the events of the last year have thrown into sharp relief.
At the same time, despite historically tight supply, low mortgage rates have in theory made homes more affordable. It has certainly made them much more affordable for real estate investors. Recent data released by Redfin, shows that in the second quarter of 2021, investors purchased 67,943 homes in the U.S. That’s over double the number of homes purchased by investors in Q2, 2020 and nearly 16% of all U.S. home purchases in Q2, 2021.
But for lower-income people more severely impacted by the pandemic and the lockdowns, they are simply being priced out by the combination of low inventory and rising prices. Low mortgage rates do not factor in for those who can no longer afford a down payment.