Homeownership in Today's Economy: Challenges and Solutions

Homeownership in Today’s Economy: Challenges and Solutions

By Lisa M. McCarroll, Navigate CEO

Homeownership dreams are increasingly out of reach with soaring interest rates and sluggish wage growth. This whitepaper explores the issue of rising home prices against flat wages, focusing on how record high interest rates make housing even less affordable. It showcases Navigate's commitment to building attainable homes for working people and proposes actionable solutions, including policy advocacy and innovative financing options. The document concludes with a solid call to action, rallying stakeholders to collaborate to address these critical challenges and advance Navigate’s mission to provide equitable, accessible housing.

Homeownership is now more challenging than ever for many working Americans. Year-overyear, home prices nationwide went up 5.2% in November 2023.

That number includes

distressed sales. Month-over-month, home prices rose 0.2% in November 2023. The YOY outlook predicts a 2.5% increase in November 2024​​. Higher home prices and sluggish wage growth underscore the urgency of addressing the widening affordability gap in the housing market.​​ Wages have increased but the cost of living has, too. Homeownership now consumes 33.7% of the average wage​.

According to the U.S. Bureau of Labor Statistics (BLS), between

November 2022 and November 2023, “real average” hourly earnings increased by 0.8% while the average workweek decreased by 0.3%. Workers, as a result, only saw a meager increase in weekly earnings​​.

This reality has made homeownership less affordable.

The sharp rise in interest rates fuels the affordability crisis, reaching unseen levels in over two decades. The 30-year mortgage rate peaked at 7.8% in October 2023. By January 2024, mortgage rates dropped to 7.04%. Despite the decrease, mortgage rates are significantly higher than two years ago.

These elevated rates significantly directly into higher monthly

payments for new homeowners.

Increased interest rates and slow wage growth have widened the gap between the cost of housing and what the average working person deems affordable. As Navigate Affordable Housing Partners seeks to bridge this growing affordability gap, it becomes clear that innovative solutions are needed.

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Navigate’s Contribution Navigate Affordable Housing Partners has been at the forefront of developing accessible, affordable homes for diverse communities. In Birmingham, Alabama, we serve low-income, elderly, and disabled

HOUSING AFFORDABILITY GAP

+4.7% Home Price Increase Vs. 0.5% Wage Growth

Sources:

individuals with units that ensure inclusivity in rental housing solutions. A second multifamily community offers tranquil living spaces close to urban conveniences, demonstrating that affordability does not compromise quality. The commitment continues with the development of new homes for purchase, transforming spaces that once stood vacant into vibrant,

In the face of climbing home prices, American wages are not keeping up. This discrepancy puts homeownership beyond the reach of many, as monthly mortgage payments consume a larger portion of income, leaving less for other expenses.

affordable homes in other parts of the city​​. repayment term​​affect the payment.

Despite these efforts, the reality of high

Generally, mortgage rates are set based on

interest rates casts a shadow on

the demand for mortgages in the bond

affordability. For instance, a home priced at

market, which is influenced by the federal

$180,000 becomes significantly less

funds rate set by the Federal Reserve, with

attainable when the mortgage interest rate

the 10-year treasury yield as a typical

rises from 3.0% to 7.8%, as the monthly

benchmark​​.

payment jumps from approximately $607 to $1,036. This puts homeownership out of reach for many, even with homes priced within what would traditionally be considered affordable.

The Impact of Interest Rates Interest rates help determine monthly mortgage payments and influence a home's affordability over a loan's life. The interest rate as well as the loan amount and the

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Here’s how varying interest rates affect monthly payments.

Monthly Payment on a $180,000 Home (30-Year Fixed Mortgage) $1,200 $1,000 $800 $600 $400 $200 $0

3.0%

4.0%

5.0%

6.0%

7.0%

7.8%

7.04%

(2021)

(2024)

Note: These payments are based on a 20% down payment and do not include taxes, insurance, or other fees.

The table clearly demonstrates that as interest rates rise, so does the monthly payment, significantly impacting overall housing affordability.

Possible Solutions The U.S. Department of Housing and Urban Development lays out several possible solutions.

Housing Supply Increases: Policies that increase housing supply can “break the cycle of decreasing affordability.”

Tax Credit Expansions: Expanding the low-income housing tax credit program “would increase the production income-restricted units.” Additionally, making the mortgage interest deduction a tax credit “could provide would-be homebuyers with lower incomes relatively more help.”

Urban Revitalization: Transforming underutilized urban spaces, such as vacant office buildings, into residential areas can support local businesses and enhance the city's tax base, which funds essential services​​.

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Accessory Dwelling Units (ADUs): Incorporating ADUs into zoning policies can increase the housing supply and provide more suburban access for renter households. However, this may also inadvertently increase property values​​.

Advocates for attainable housing could champion these solutions by lobbying for policy changes that support these initiatives, partnering with other organizations to increase the supply of affordable housing, and providing financial education to help potential buyers navigate the complexities of homeownership in today's market.

A Call to Action Join Navigate Affordable Housing Partners in our mission to ensure accessible, quality housing for all. Your advocacy, education, or partnership can make a tangible difference in community development and housing affordability. Here’s how you can take action: Advocacy: Support policy reforms and initiatives to increase affordable housing supply.

Education: Inform and educate communities about housing resources and homeownership opportunities.

Partnership: Collaborate with us on projects, events, and educational programs.

For more information, to hire our consultants, or to stay updated on housing issues, reach out to us: Headquarters: 2701 1st Avenue South, Suite 200, Birmingham, AL 35233 Phone: 888-466-5572 Contact Page: Navigate Contact Us​​.

Click or scan the QR code below to directly access our Community Development page and sign up for updates on our ongoing efforts in affordable housing:

Lisa McCarroll is the CEO of Navigate Affordable Housing Partners. She is an expert in affordable housing and community revitalization. Lisa's pragmatic approach has expanded access to quality, sustainable homes.

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