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Tags: buyers | interest | renters

Debbas: Is the American Dream of Home Ownership Fast Fading?

dusk for the american dream of home ownership
(Alexandra Solovyeva/Dreamstime.com)

By    |   Tuesday, 25 October 2022 04:09 PM EDT

Home ownership has long been considered the American Dream.

The stark reality, however, is a national average price tag of $428,700 for a single-family home, mortgage rates increasing more than two percentage points amid inflationary pricing on daily necessities, and a home affordability index that has topped a 30-year high.

Simply put, a shortage of affordable housing has evolved to the level of an American crisis with entry-level buyers bearing the brunt.

California, for example, has one of the highest market values for homes in the country, with affordable housing becoming more and more scarce for lower income households and students.

The state set a goal to build 3.5 million new housing units by 2025, which experts have estimated will be the total need by then.

However, meeting that goal would require 500,000 new housing units annually, but last year, in 2021, local governments issued permits for only about 120,000 units.

Post 2008, there was a perception that the U.S. was facing a glut of inventory; credit worthiness was redefined, and bank’s tightened lending for several years.

In line with the market pace, a significant new infusion of housing stock was not created for more than a decade.

Today, with limited supply and limitless demand, prices remain at an all-time high.

A recent report by The National Multifamily Council revealed that approximately 4 million single family homes must be developed over the next 20 years to outrun need, and a similar number of new affordable units must be introduced for renters.

Disenchanted by the volatility of the stock market and attracted to rapid gains and long-term projections, institutional investors such as Goldman Sachs, Blackstone and iBuyers purchased approximately 20% of all homes during the most recent housing boom, once again, to the detriment of the individual buyer.

The institutional entry into the housing market was an instant catalyst for price further appreciation and resulted in many would be buyers remaining renters for the foreseeable future.

The pandemic also had a profound impact on the housing market.

Declines in some areas of the country were met by unprecedented growth in others.

Florida in particular claimed rank as the U.S. state with the highest number of new residents, followed by Texas in the number two spot.

As a result, Florida’s local real estate market skyrocketed over the past two years.

In the sales market, price appreciation outpaced nationwide reports, and with regards to rentals, at one point, Miami rents were up 53% in comparison to pre-pandemic levels.

Florida simply wasn’t quite ready for the droves of people moving in and in many areas, there was a vast difference in supply and demand.

Government action is needed.

Developers must be incentivized to build entry-level housing that is limited solely to primary occupants.

As a further protection for the lower- to middle-class, the government must regulate Wall Street and limit its ability to acquire single-family housing in quantities to the likes of the most recent years.

Further, interest rates need to be closely examined.

Given the low supply, rising interest rates have not resulted in the anticipated market-wide price correction, but rather it appears they are tempering the absurd appreciation levels that have taken place since the onset of the pandemic.

Through its home lending subsidiaries, the government should create additional programs for first time home buyers below specified income thresholds that provide interest rates under the 5-6% range that has become the norm during the second half of this year.

Collectively, immediate steps must be taken to protect the American Dream.

Pierre E. Debbas is a partner and founding member of Romer Debbas, LLP, a New York City law firm specializing in real estate and other areas. Pierre has extensive experience in areas of real property and general business law. He has been involved in thousands of real estate transactions, inclusive of those in areas of commercial real property, and its associated transactions.  

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Government action is needed. Through its home lending subsidiaries, the government should create additional programs for first time home buyers below specified income thresholds that provide interest rates under the 5-6% range.
buyers, interest, renters
Tuesday, 25 October 2022 04:09 PM
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