Americans Run Out Of Money To Buy A House
A quiet crisis is unfolding in the American housing market, where a collision of soaring mortgage rates, record home prices, and shrinking household budgets has locked millions of would-be buyers out of a market that may never look the same…
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After its last earnings announcement, Home Depot CFO Richard McPhail said, “Housing turnover… has been at historical lows. It has never been lower as a percentage of the housing stock,” according to Yahoo. Market mechanics are driven, to some extent, by homeowners with 3% interest rates on 30-year fixed mortgages versus buyers facing mortgage rates that just topped 7%. Simply put, many Americans don’t have the money to be buyers. They have run out of the money needed to make a down payment and meet their monthly obligations as homeowners.
The math is ugly and stark. For a $400,000 home, the monthly mortgage payment at 3%, with 20% down, is $1,686. At 7%, the monthly mortgage payment jumps to $2,661. Over 30 years, the total difference in interest payments is $350,924. That’s almost as much as the house itself.
About 4.7 million houses are sold in the US each year. Of those, 4.1 million are previously owned. People who sell those homes often have significant equity, largely because home prices have risen about 75% in the last decade, according to Realtor.com. That took the median price across the US to $414,400. Often, home equity dollars help the economy.
National Mortgage Professional published a report titled “Economic Impact Of Fewer House Sales.” Among its conclusions was: “Monitoring housing turnover gives us an important read on the housing market, but also a glimpse of the potential demand for everything from couches to contractors and, ultimately, on the health of the broader economy.”
Home buyers also face higher prices for everything from gas to food to college loan payments. That digs into their discretionary income. That, in turn, undermines their ability to save for down payments and make relatively high monthly payments. (Ultimately, this can also negatively affect GDP.)
During the Cold War, Dwight Eisenhower coined the term “domino effect.” It described how a communist nation could influence the politics of surrounding nations. Therefore, eventually, communism could spread unchecked. He added that the US needed to block these effects. However, the government won’t address the mortgage-rate dilemma to prevent housing market troubles. The government won’t give people down payments. We have a housing “domino effect.” House to house. Mortgage to mortgage.
Another factor homebuyers face is that inflation is moving higher faster than household income. The BLS reported that inflation rose 3.4% in August. Average hourly wages were up 3.1%. Homebuyers’ buying power is eroding.
For a whole host of reasons, Americans don’t have money to buy a new home.
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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.
A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.
