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Writer's pictureJesse Brewer

The Housing Affordability Crisis

If you have been in the market for a new home in the last few years, then you know the challenges many buyers, especially those looking to purchase their first home, are experiencing. For those of you who have not been in the market lately, consider yourselves lucky; however, I am confident that you are aware of the difficulties buyers are having finding a home they can afford



The media is correct in reporting that we are in a housing affordability crisis. The coverage has spurred calls for local and federal government to do something about the situation. But this is not a new problem.


Looking back at the financial crisis of 2008, which was led by the subprime mortgage meltdown, many builders were unable to keep up with population demands and trends for housing.  Banks’ reluctance to lend, coupled with marketplace uncertainty, resulted in many builders sitting on the sidelines and not willing to take unprecedented risks.



This underbuilding caused a ripple effect that dwindled future demands for the next 10 to 15 years. Since generational behaviors and patterns tend to shift from one generation to the next, this was one of the ingredients that went into the pressure cooker that is now the current problem we have today.


As the economy and housing markets improved, builders once again started building but were unable to keep up with the current demands, a situation augmented by excess demand from the earlier backlog.



Another key ingredient is a lack of a trade workforce. For years, many younger folks were opting for traditional college education rather than trade schools. For a time, if you went to a trade school over college, it was you “weren’t smart enough” or could not afford it. This trend continued for several years, and it was only in recent years that the messaging around this started to change.


Another one of the more complex ingredients in this housing affordability is hyper-inflation. This topic alone has been front and center in countless articles and interviews and is layered in from other issues in the economy. 


When the Federal Reserve prints money and keeps pumping it into the market, it devalues the money that is already in place. When that happens, prices go up. When prices go up on goods and services, then wages must also rise to maintain standards of living. But wage growth in the already strained building trade work pushes up the cost of housing. This is a cycle that repeats itself and compounds the existing problem.



While it is often overlooked, one of the key issues that led us to this boiling point is interest rates, right before and during the pandemic, interest rates plummeted. They dropped fast and hard and stayed there for quite some time.


When the cost of borrowing became next to nothing, home buyers spent more money on a home while locking in longer-term debt. Or they took advantage of low borrowing costs and refinanced to pull cash out of their home.


The new money flooding into the market left homeowners with cash to hire contractors for large-scale home improvement projects, putting additional strains on the building trades workforce and material supply chains. 


Low interest rates created some other unintended consequences. Most residential mortgages are fixed at the originated rate for a 30-year term. If the borrower does not refinance the home or pay additional principal on the loan, then the mortgage payment will remain constant (except for changes to insurance costs and local property taxes). Since most people tend to either refinance or sell their home within five to 10 years, this has not been an issue – until now.



Against this backdrop of the housing market, the Federal Reserve moved to slow down historically elevated levels of inflation, which contributed to the excess printing of money. Meanwhile, the federal government forgave billions of dollars of student loan payments, allocated stimulus monies, and took other drastic steps.


The Fed had only had two steps to take: First, they stopped pumping extra money into the market, and Second, they began to aggressively raise interest rates at a historic pace.


In less than two years, the 30-year interest rate on a mortgage went from around 2 to 4 percent to more than 7.5 percent, which crippled buying power. In addition, homeowners with low rates now feel stuck because if they sell their home to purchase another one, they must do so at a much higher rate, which drastically increases their monthly payments. This results in potential buyers/sellers staying on the sidelines and putting even more stress on the already dwindling supply.



So, what happens now?


There seems to be a growing opinion for local government to step in, but the options are limited. Local government could allow variances for zoning density, issue some tax abatements, or even potentially offer some bond financing for large-scale projects.


However, it is unclear if such steps would have any significant impact. The challenge with tools is that their effectiveness will not be known or realized for years to come. 


We did not get to this current state of the housing market overnight, and we surely will not get out of it overnight. Population trends are shifting again as younger generations are having fewer kids, which could create some stabilization by reducing the needs of today’s market. But those are long-term changes that do not answer the short-term demands of today’s buyers.


The only genuine advice to anyone looking now is to be patient but also persistent and have flexibility when looking for that first home to purchase.


Jesse Brewer is an elected Boone County Commissioner as well as a licensed Real Estate broker. 

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