Housing shortage risks breaking the American dream
As interest rates rise to combat stubbornly high inflation, increasing mortgage costs are making housing in the US — as across the Atlantic in the UK — even less affordable. In America, today’s 7 per cent rate for a 30-year mortgage, coupled with a median home price of $390,000, yields a monthly mortgage repayment of $2,600; a whopping 53 per cent increase since last December, when both rates and prices were less. The affordability of housing, a function of home prices and personal incomes as well as interest rates, is becoming a political hot-button issue ahead of the midterm elections.
While wages have been increasing as the pandemic has eased, they have failed to offset rising energy, housing and food costs. Although expectations of house price falls are growing, as rates rise, affordability is still expected to be a long-term challenge, especially for first-time buyers and the young.
Some factors behind soaring property values are common across the US and other advanced economies. Declining interest rates helped to fuel demand and prices, but in many places so did constrained land supply, zoning issues, and over-regulated markets. The result is that even before the runaway inflation of the past year, average home prices in 10 countries representing 60 per cent of global gross domestic product had tripled in the past two decades, according to McKinsey Global Institute figures.
This story originally appeared on: Financial Times - Author:The editorial board
