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The Housing Affordability Crisis and the “New Normal”

The Housing Affordability Crisis

According to the National Association of Home Builders (NAHB), The sales of new houses (considering single-family as units) have decreased from April 2023 to April 2024 by 7.71%. If we zoom out, it has decreased 36.78% from October 2022 to April 2024.

As the numbers are decreasing, It shows the modern-day housing affordability crisis in the US. 

Let’s face the harsh realities of the current housing market in the US. We will discuss the situation, rising mortgage rates, rising home prices, and also the new normal in the industry.

Key Points

  • Mortgage rates have hit a 22-year high.
  • The median family now needs an additional $9,000 annually to afford a median-priced home compared to 2020.
  • Work-from-home trends are pushing up prices in affordable cities.
  • A combination of rising income, falling home prices, or lower interest rates is needed to restore affordability.

Analyzing the Current Housing Market

Few factors hit closer to home for everyday Americans than the state of the housing market. It’s where the pulse of the American dream beats the strongest, yet today, that pulse is under duress.

Mortgage Rates and Their Impact

The 30-year fixed mortgage rate has surged to about 8%, a high we haven’t seen since 2000, turning what was once a doorway into homeownership into a barrier for many. Reflecting this, the National Association of Realtors (NAR) reports a stark drop in its Housing Affordability Index, nearly halving since 2020. The typical family is now $9,000 short of the income needed to buy a median-priced home, and five million more families no longer qualify for a $400,000 loan.

So, is the American Dream Dead?

The American Dream, with its white picket fences and backyard barbecues, has always been synonymous with homeownership. Yet, for the median family, this dream is fading, outpaced by a reality where the qualifying yearly income for a median-priced house has more than doubled from $49,680 in 2020 to over $107,000 today. And as work-from-home trends make their indelible mark, once-affordable second and third-tier cities are feeling the crunch. These new desirable locales are witnessing an influx of remote workers, further inflating housing prices and reshaping the fabric of community demographics.

Challenges and Solutions for Housing Affordability

The current housing market and affordability crisis revolve around income, prices, and rates. It’s a multifaceted challenge that demands a multifaceted response.

  1. Looking Closer at the Trifecta Affecting Affordability: Income, Prices, Rates

Let’s dissect the crux of the matter: the interplay of incomes, house prices, and mortgage rates. These three forces have conspired to create the perfect storm for affordability—or rather, the lack thereof. For instance, we already talked about the median income necessary to afford a median-priced home catapulting to over $107,000. But when you look closer, the dream looks even further out of reach. Economists like Moody’s Analytics’ Mark Zandi suggest that for the median household to afford a home at the current 8% mortgage rate, there would need to be a 28% income increase, a 22% decrease in home prices, or a significant drop in mortgage rates—or a combination thereof.

  1. Can New Housing Solve This?

We at RSN believe that more housing is the cure for this illness, especially with the chronic deficit of new housing. The shortfall is not in thousands but millions, with Freddie Mac revealing that the U.S. was short about 3.8 million homes to keep pace with demand before the pandemic—a number that’s likely only swelled. Builders have initiated work on just over 692,000 new single-family homes this year, a pace that barely scratches the surface of the need, hinting at a timeline that spans years, not months, for any semblance of equilibrium.

  1. Government and Fiscal Policy

Where does this leave us? The government’s hand can tip the scales. Yet, the current initiatives are little more than short-term band-aids rather than robust, long-term strategies. Calls for policy innovation grow louder as we confront a market that cannot correct itself on the whims of supply and demand alone. Unfortunately, the situation needs to get many magnitudes worse before the government will act aggressively to strip away regulations and restrictions and properly incentivize the volume of new housing needed to solve this problem. The “new normal.”

So, Will We Ever See Normalcy Again?

Nobody has a crystal ball in real estate. Still, understandably, the question on everyone’s mind is: When will we return to ‘normal’?

The Road to 2026: A Prognosis of Market Health

Forecasting the future of real estate isn’t for the faint-hearted. Economists hint at a horizon where 2026 stands out as a milestone year for a return to what one might call ‘normal.’ But this normalcy comes with a caveat—it’s predicated on a delicate balancing act involving higher wages, lower interest rates, and stable prices. According to Mark Zandi’s prognosis, the market is currently “in a deep, deep freeze,” and at RSN, we believe it’s only just beginning to thaw. Further progress will require a concerted effort across all three fronts.

The Regional Riddle: Pockets of Persistent Pain

Dive into the granular details of American real estate, and you’ll find a patchwork of disparities. In regions like New York and California, the fabric of affordability is more frayed than ever, with the NAR indicating that these areas face a steeper climb back to affordability. Meanwhile, cities like Phoenix and Tampa are experiencing a cost squeeze reminiscent of California’s earlier years, signaling that for some regions, the path to normalcy is steep and fraught with obstacles.

A Market of Contrasts: Cash Buyers vs. the Heartland

In the interim, the real estate market has become the playing field of a select few, notably cash buyers, who wield a mightier sword in negotiations. Yet, there’s a silver lining, as pointed out by NAR’s chief economist, Lawrence Yun. Heartland cities like Louisville, Indianapolis, and Chicago remain affordable, where modest rate cuts could still pave the way for homeownership. However, the broader outlook confronts a hard truth: the days of 3% mortgage rates are over, and 5% is the new stability benchmark. This shift signifies an era where, despite short-term fluctuations, the long-term trajectory points towards a real estate market that will squeeze more out of the average American.

This is why we at RSN feel so confident about our philosophy and positioning.

RSN’s Positioning: How We Are Changing The Situations?

After tackling the tough realities of the current housing market, let’s shift gears to RSN Property Group. We’re committed to rejuvenating communities over the long haul: 5, 10, 15 years — not just for investor gains but to fulfill a crucial need within these communities.

  1. Investment Approach

We believe multi-family properties are key to safeguarding and increasing your wealth in a country where renting is becoming the norm. With the worst housing affordability in over 30 years due to soaring property prices and recent rapid interest rate hikes, Americans need reliable, modern, and affordable rental options now more than ever. At RSN, we’re responding to this need by providing essential housing people can call home.

  1. The Value-Add Strategy Explained

At RSN, our strategy centers on Class B multi-family investments, where we see potential for both growth and stability. Our approach is transformative: we don’t just invest; we enhance communities with thoughtful renovations aimed at long-term vitality. 

We target properties catering to households earning $65,000 to $85,000 annually, striking a balance between affordability and quality. This sweet spot allows us to avoid the premium rents of Class A properties and the higher turnover risks associated with Class C ones. We serve dedicated, hardworking individuals and families seeking secure, contemporary, and reasonably priced homes. 

Our focus on Class B properties not only meets a critical housing need but also positions us strongly against market downturns. In fact, during the recession’s peak, Freddie Mac multifamily loans saw a default rate below 0.5%, attesting to the resilience of Class B investments in all economic climates.

  1. Alternative Real Estate Investment Options

RSN understands that today’s investors crave flexibility. We offer opportunities to tap into the real estate market far beyond the traditional primary residence. This shift towards making real estate investment more accessible and diverse is at the heart of what we offer, providing strategic opportunities that fit a variety of investment profiles and goals.

Wrapping Up: Preparing for The “New Normal” in Real Estate

Looking ahead, RSN is preparing for the “New Normal” in real estate. We are preparing a market adapting to sustained high rates and prices. Our vision is clear: to be a responsible contributor to an ecosystem where affordable housing is not impossible. 

Let’s get into the real estate market with RSN! As we gave you the lowdown on affordability challenges. Now, explore how RSN’s Class B multi-family investments can help you win in real estate. Contact us today!

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