Record inflation reduces housing affordability and widens racial wealth gaps

By Charlene Crowell

This summer, temperatures are not the only ones to exceed normal. The US Bureau of Labor Statistics reported that the country’s consumer price index (CPI) at the end of May was the highest since December 1981, more than 40 years ago. This key economic measure tracks changes in prices paid by consumers for goods and services for approximately 93% of the total US population.

The most recent report released on June 10 showed double-digit increases in the CPI for fuel, food, utilities, and new and used vehicles.

Even before this data release, many consumers have already adjusted their lives to compensate as best they can for $5-a-gallon gas prices, keeping family cars around longer and taking fewer family outings. to free up funds for ever-rising food prices.

But how much longer can housing remain affordable when house prices and rents rise even more?

Home ownership, historically a reliable part of family wealth, is more of a challenge for first time buyers today. In the first quarter of 2022, the median price of an existing single-family home rose to $368,200, according to the National Association of Realtors (NAR), up 15.7% from a year ago.

Families able to afford a 20% down payment on this median-priced home can expect a monthly mortgage of around $1,383, up $319 — 30% more — than a year ago, according to NAR.

For Black America, however, a history filled with systemic discrimination in education, employment, loans, and housing imposes additional harsh realities that have yet to be effectively addressed.

From 2013 to 2019, after adjusting for inflation, the median income of black households increased by only $800, compared to about $3,000 for white households and $3,700 for Latinx households, according to a National Equity Atlas study that analyzed the 100 largest metros in the country. areas. Additionally, during those same years, the number of affordable neighborhoods for black households fell by 14%.

“The declining affordability of neighborhoods and the shortage of affordable neighborhoods that provide the conditions necessary for health, well-being and economic success in many large metropolises reinforce long-standing patterns of racial segregation and create new ones,” the report concludes.

Other new research from Freddie Mac sought to identify the causes of soaring home prices and where to find affordable homes. What has driven house price growth and can it continue?

• Record mortgage rates in 2020 and 2021 generated a race to beat future rate hikes;

• Home inventories were limited due to under-construction on the one hand, and below-average distressed sales on the other;

• The number of first-time home buyers has increased in part due to favorable age demographics; and

• Many consumers moved from high-cost cities to cheaper cities that were already experiencing housing shortages. Where to find affordable homes is reminiscent of an old adage in real estate, “location, location, location.”

Where to find affordable homes is reminiscent of an old adage in real estate, “location, location, location.”

“As of February 2022, migration out of the 25 largest cities remains three times higher than the pre-pandemic rate,” the Freddie Mac report states. “The largest increase in migration has been to mid-size metropolitan areas with populations between 500,000 and 1 million, followed by smaller mid-size metros and smaller metropolitan areas.”

The irony is that many consumers today pay more for fair rent (FMR) than many monthly mortgages that lead to home equity and wealth.

The down payment – ​​rather than the monthly mortgage note – is the biggest barrier to homeownership for many renters. With the rising cost of living, there is little or no money left over at the end of a month for many families. And even if a family has managed to save a few hundred dollars or more, the down payment on the private market is in the tens of thousands of dollars.

Some home lenders may offer adjustable rate mortgages (ARMs) as an alternative for cash-strapped buyers. But the key word of these loans is “modular”. In the event of loan interest resets, borrowers should expect higher interest rates. It would also be prudent to remember that the foreclosure crisis of the early 2000s was fueled by high-cost mortgages that left millions of black and Latino homeowners either without a home or staying in one with a balance. loan above its market value.

If this nation is serious about solving its affordable housing crisis, it’s time to give black America a level playing field with access to affordable and sustainable mortgages. It is equally important to diversify new housing construction Currently, the vast majority of new housing construction, whether for rent or purchase, is aimed at high-income consumers, leaving middle- and low-income families with dramatically shrinking housing options.

Every family of every income needs a home. Effective housing reforms would deliver both access and affordability – not one or the other.

Charlene Crowell is a senior researcher at the Center for Responsible Lending. She can be contacted at [email protected]

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