Written By: Joel Palmer, Op-Ed Writer
President Joe Biden made it clear before winning last year’s election that his main housing goal was making it easier for lower income people to qualify for mortgage loans.
In The Biden Plan for Investing in Our Communities Through Housing that was posted online during the campaign, Biden pledged to allocate $640 billion over 10 years “so every American has access to housing that is affordable, stable, safe and healthy, accessible, energy efficient and resilient, and located near good schools and with a reasonable commute to their jobs.”
Even while dealing with the COVID-19 pandemic, the withdraw of U.S. forces from Afghanistan, and other priorities, the Biden administration has WHAT.
Within Biden’s first week in office, the Federal Housing Administration (FHA) announced that individuals classified under the “Deferred Action for Childhood Arrivals” program (DACA) can now apply for FHA mortgages.
The administration included several affordable housing initiatives in a budget proposal. One proposal is a Home Equity Accelerator Loan (HEAL) Pilot that would test new loan products designed to lower barriers to homeownership for first-time, first-generation homebuyers.
In addition, the administration appointed a new leader at the Federal Housing Finance Administration once the Supreme Court paved the way. Then earlier this month, FHFA announced higher low-income housing goals for Fannie Mae and Freddie Mac over the next three years.
Yet with all of these efforts to increase access to mortgage financing, one question remains: Can these efforts be successful if there is not enough actual housing available on the market?
The lack of housing inventory has been an ongoing issue. This lack of supply coupled with increasing demand caused median sales prices for existing single-family homes to increase in all but one of 183 measured markets during the second quarter of this year, according to the National Association of Realtors. In addition, 94 percent of those markets experienced double-digit price increases.
Recently, Black Knight, a technology and data company focused on the housing and mortgage industries, recently shared data on the rate of new home production in the last 40 years.
Specifically, the company analyzed how well the nation’s homebuilders met the demand for new households, not just increases in population. Since the average household size has steadily decreased for the past 40 years, over time, increases in population have led to even greater demand for housing units.
And for most of the last 40 years, home building kept pace with that demand.
According to Black Knight’s analysis, the nation’s homebuilders produced enough units to provide single-family housing for 92.8 percent of new households entering the market between 1981 and 2009. With multifamily production added in, there was sufficient housing to meet the needs of new households entering the market.
So what has happened since 2009? There have only been enough new housing units built to provide for 60.5 percent of new households.
“Many markets with strong economic growth correspondingly ramped up more obstacles to development,” Black Knight wrote. “The housing shortfall and affordability problems have been the result of a clear turning point in 2010, when the production of new housing was stymied by the Great Recession and never fully recovered.”
What did recover was the economy, along with demand for more housing buoyed by an unprecedented string of low mortgage rates.
The escalating home prices have soured most potential buyers. Fannie Mae’s most recent Home Purchase Sentiment Index showed that only 28 percent of respondents felt it was a good time to buy a home.
So at a time when mortgage rates are at historic lows and when the federal government is trying to do whatever it can to encourage homeownership, fewer people want — or perhaps more accurately, have the ability — to buy a home. This not only includes potential first-time buyers, but also existing homeowners who would otherwise be in the market for an upgrade. After all, what good is it to sell your home at a premium if you have to turn around and buy a replacement home at the same premium?
So it would seem that until there are more opportunities for first-time and lower-income buyers, the administration’s housing initiatives may not have the desired effect.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
