Sharp Rise In Home Prices, Mortgage Rates Driving Working Americans Out Of The Market

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A 'Perfect Storm': Sharp Rise In Home Prices, Mortgage Rates Driving Working Americans Out Of The Market

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The dramatic rise in home prices and mortgage rates in the early months of 2022 has had a relatively limited effect on wealthy buyers and sellers, but has had a severe impact on lower-income Americans - and the Democratic Party may pay a steep price for their frustrations in the November midterm elections and beyond, according to real estate analysts and commentators.

Average payments on mortgages went from 3 percent to 5 percent in the first three months of the year, and are now 38 percent higher than a year ago, according to a Politico report citing figures from real estate listing service Zillow.

Partly because of inflation, the average rate on 30-year mortgages this week hit 5.46 percent, the highest figure since August 2009, according to Bankrate statistics.

Rates are up across the board, including 30-year fixed rates, 15-year fixed rates, and 5/1 adjustable-rate mortgage (ARM) rates. As of April 2022, the median home price in America stood at $344,141, a 20.9 percent leap from a year before, Zillow states.

Inflation, driven by the pandemic and other factors including the government’s expansionist monetary and fiscal policies, has contributed to adverse market conditions where lower-income voters whom the Democratic Party claims to represent have it the hardest. The sharply rising mortgage rates, compounded by an inventory shortfall, are driving many prospective buyers out of the market, experts say.

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“I think it probably does disproportionately affect the lower end. If you’re at the higher end of the market, and rates are in the 4s or 5s, that’s not a crazy number. But if you’re trying to get in, a fluctuation in the interest rates can price you out and make you not able to compete with the cash developers,” said Zachary Schorr, a real estate attorney based in Los Angeles.

“The real estate market has been going up and up, outpacing income. As that disparity keeps growing, it becomes increasingly difficult for the lower end to get into entry-level homes,” he said.

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“One of the reasons we have low inventory is that many sellers, particularly ones who bought post-recession, have ‘silver handcuffs’ in that they have a very low-interest rate on their mortgage. If they were to list their house, i.e., add it to the inventory and alleviate pressure on buyers, they would be looking at higher prices, higher interest rates, and substantially higher monthly payments” on a new home they set out to acquire, Pruner explained.

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The rise in mortgage rates, and the higher monthly payments on homes, are likely to hit people at the lower end of the socio-economic scale the hardest even as they contemplate purchases in the mid-market range. In Acton and in Cape Cod, where Scheier handles large numbers of transactions, a $500,000 house is a relatively modest one.

“For the poor couple trying to scrape together $100,000 as a down payment, now they’re looking at an increase of $500 a month or more over what they would have paid three months ago. That’s going to create significant changes in the whole dynamics,” Scheier said.

Scheier has noted a number of changes in home-buying protocols in the markets where he works. Some buyers are foregoing spending money on inspections of homes prior to closing, even though inspections may be necessary to alert them to potentially serious damages or structural flaws that may be expensive to fix.

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