JCHS: High interest rates hold down homebuyers
Hikes in interest rates over the past year continue to impact housing markets and affordability for both homeowners and renters across the United States, according to The State of the Nation’s Housing 2023, a new report from the Harvard Joint Center for Housing Studies (JCHS).
Rising mortgage costs have pushed homeownership out of reach for millions of renters at a time when large numbers of millennial households are at prime homebuying ages. Additionally, homeownership disparities between white households and those of color are near historic highs, according to the JCHS.
Higher interest rates have also sparked a slowdown in the construction of new single-family homes, even as a nationwide housing shortage contributes to high housing costs.
“Rent growth slowed over the past year and home prices declined in a number of areas,” says Daniel McCue, a senior research associate at the JCHS. “Nonetheless, housing costs remain well above pre-pandemic levels thanks to the substantial increases over the last few years.”
Since the beginning of 2020, asking rents in the professionally managed sector are up by 24% while home prices are up by 37.5 percent%, the JCHS reports.
First-time homebuying plummeted over the last year in response to the increased cost of homeownership.
Between March 2022 and March 2023, payments on the median-priced home shot up from $2,500 to $3,000 as the annual interest rate on 30-year fixed-rate mortgages jumped from 4.2% to 6.5%.
This resulted in a 22% decline in the number of mortgages originated to first-time homebuyers in 2022, including a year-over-year drop in the fourth quarter of nearly 40%, as over 2.4 million potential homebuyers were priced out of homeownership, the JCHS said.
The new report also indicates that rising costs disproportionately affected potential homebuyers of color who were already much less likely to own homes than white households; Black and Hispanic homeownership rates were 28.6 and 25.8 percentage points below white homeownership rates in 2022.
As Single-family housing starts dropped 10.8% last year, concerns have been raised about the nation’s large and ongoing housing shortfall. In the existing-home market, just 970,000 homes were available for purchase in March 2023, 42% less than in 2019.
“On the other hand, multifamily construction continued to rise in 2022 even as rental demand softened,” says Alexander Hermann, a research associate at the JCHS. “Indeed, nearly 1 million multifamily units were under construction in early 2023, the highest rate in almost 50 years.”
But rising vacancy rates, along with higher interest rates and tighter lending, could lead to a slowdown in multifamily construction.
The JCHS also said investments are needed to preserve the country’s aging housing stock and respond to climate change; more than 14.5 million homes were affected by hazards in 2021, amounting to $57 billion in damage.
“Housing is a crucial engine of economic growth, and investments in this important sector pay broader dividends,” says Chris Herbert, managing director of the center. “As the pandemic highlighted, high-quality, stable, and affordable housing is foundational to widespread well-being and, as such, both merits and necessitates greater public attention.”
Click here to read the full State of Housing 2023 report from the JCHS.
