It’s the Monday after a Sunday open house and a dozen potential buyers put in bids, sparking a fierce bidding war and driving up the sales price. It’s a scenario that’s replaying itself over and over again in real estate markets across the country. In the U.S., it’s a seller’s market, but housing has become historically unaffordable.
Economists prefer to see home price growth in the 4% range; that’s a healthy figure. For the last two years, however, homes prices in the U.S. have pushed up by 5.1% – already an unsustainable rate – and forecasters see upward of 6% as a possibility this year. That’s a problem, because personal income isn’t growing at as fast a clip. Many potential buyers simply don’t have the paycheck to afford the home they want to be in.
Why have prices climbed so steeply?
A major factor has been that demand has outpaced inventory, and especially for new, starter homes. Many builders — frustrated with rising construction costs, less-skilled labor and less viable land to build on — have abandoned affordable starter homes, heading instead into the luxury market. Keller Williams estimates the market is missing over 2 million homes that were never built.
Adding to the affordability issue is massive student loan debt, which has limited many buyers’ purchasing power, and soaring health care costs. Rising interest rates also aren’t helping. For a 30-year fixed mortgage, the difference between a 4% and a 5% interest rate is equivalent to a 10% increase in a homeowner’s monthly payment; a sizable amount.
The effects of the plunge in affordable housing have been widespread. It’s left sales volume static. Many first-time home buyers remain priced out of the market and stuck in rentals, which are also getting pricier. Of those who have bought, many have been forced to buy in a location far from their place of employment, leaving them saddled with long commutes.
Homeowners wanting to upgrade their starter house and purchase a larger home are also finding themselves in a holding pattern, unable to find a first-time buyer. It used to be homeowners stayed in the first home they purchased for five to seven years. Affordability issues have pushed out that timeline.
Take time to get involved
For Heather Ozur, team leader of The Ozur Group in La Quinta, California, and an agent since 1999, these scenarios are all too common. Ozur has made a point to help tackle the affordability issue head on by regularly volunteering her time in the industry.
She’s chair of the National Association of REALTORS®’ Strategic Thinking Advisory Committee, director of the California Association of REALTORS®, and 2018 president-elect of the Women’s Council of REALTORS®.
“As real estate agents, our job shouldn’t just be constantly selling homes,” Ozur said. “There’s more to what we do.”
Real estate agents are uniquely positioned to hear the stories of struggling home buyers and relate those stories, she said. “Every agent should make the time to get involved in a local, state or national association so the government hears our voice,” she said.
Ozur said it’s important to understand exactly what affordable housing is. Many might interpret it as homes for those with low income, and that’s crucial, but another aspect of affordable housing is workforce housing, she said. It’s a home that a teacher, fireman or police person can afford to buy in the city or town they’re working in.
“That’s key and critical,” Ozur said. “Being able to purchase a home allows someone to become more invested within their local community. They have more interest in it, in improving their property, investing their time there, and sending their children to the neighborhood school.”
Make your voices heard
Some states have tried to offer a bit of relief to the unaffordability issue, setting up a home buyer initiative, where residents can contribute funds to a tax-free account they can utilize to fund their first home. “It gives them a leg up,” said Ozur.
It’s programs like those that REALTORS® can help lobby for when they volunteer their time with an industry group, even joining NAR’s REALTORS® Political Action Committee. It can be tricky to carve out the time from a busy work schedule to volunteer, Ozur said, but it’s essential, and it’s fulfilling to know you’re having an impact by helping shape the real estate market.
“You just have to strike the right balance between work and volunteering,” said Ozur. “It’s critical to get involved.”