Is a National Housing Crisis Brewing?
If one is, what actions can be taken to head it off?
Housing is sputtering. Home sales, home-building and homeownership have gone flat, and the rise in home prices threatens to stall out. Things aren’t likely to get better soon, particularly for lower- and middle-income households struggling to make the rent and become homeowners. That is, unless policymakers act.
Housing statistics are clear. Sales of new and existing homes have gone sideways over the past year, as has new single- and multifamily home-building. Housing prices are still rising in much of the country, but the pace of growth is throttling back, and some builders are cutting prices to move houses. Homeownership, which collapsed during the housing crash a decade ago, is just off bottom, and foundering.
Housing’s travails appear incongruous with the red-hot job market. The economy is creating lots of jobs, unemployment is near a 50-year low, and job openings are at a record high. Workers are demanding and getting bigger raises. In earlier times, when people had jobs, they bought and built homes. They became homeowners. So, what’s wrong?
For one thing, potential home buyers are having trouble digesting the run-up in mortgage rates. A year ago, the typical rate on a 30-year fixed-rate mortgage loan was no more than 4 percent. Today, it’s closer to 5 percent. The increase is partly the result of Federal Reserve efforts to normalize interest rates amid a strong job market. Rates are also rising in response to the ballooning federal budget deficit that’s paying for President Donald Trump’s tax cuts and government spending splurge.
A 5 percent mortgage rate might not sound high, at least not to anyone over the age of 40. But rates have been so low for so long that most homeowners are now paying no more than 4 percent. It is too big a financial stretch for many to sell a home with a 4 percent mortgage and buy one with a 5 percent mortgage. This interest-rate lock is one reason the typical homeowner has lived in his or her current home for almost a decade, nearly double the average homeowner tenure before the crisis…