Biden Has A Housing Problem

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Despite the strong economy, Biden has not won over voters, and one obvious culprit behind the economic pessimism is the housing market. Unemployment is low, economic growth is strong, inflation has moderated, and income inequality has declined for the first time since 2007. However, home sales are at lows not seen since 2008, and 2023 is on pace to be the least affordable time to buy a home on record. Renters are demoralized about how unattainable homeownership has become, and homeowners feel stuck as high mortgage rates leave them unable to move. This has soured middle-class voters on Bidenomics.

The Young Middle Class Has Been Left Behind In The Housing Market And Economy

During the pandemic a once-in-a-lifetime gift was given to people who had the means and flexibility to buy a home. The Fed pumped money into the economy through low interest rates and supercharged demand for homes, especially among affluent people who seized the rare chance to lock in a rock-bottom price for a 30-year mortgage. Second home purchases doubled and luxury home sales growth quadrupled in 2020. While wealthy people and investors gobbled up homes, first-time homebuyers struggled to compete. And now that mortgage rates are near their highest point this century, many young people have been completely shut out of the market.

The obstacles keep piling up for first-time homebuyers: higher interest rates, higher home prices, fewer homes for sale and higher insurance costs. With President Biden’s limited progress on student debt reforms, many young Americans are now restarting their student debt payments and experiencing a greater struggle in their pursuit of affording a home.

If you are stuck renting, you likely feel worse about the economy than someone who has crossed the threshold into homeownership. In a recent Redfin housing-market survey, 41% of U.S. homeowners felt positive about the state of the economy, compared to only 34% of renters. Only about one in five American adults say now is a good time to buy a home, down from nearly one in three in 2022, according to a May Gallup poll. The readings in 2022 and 2023 are the only times over the past 45 years when the majority of Americans thought it wasn’t a good time to buy a home.

Golden Handcuffs Are Restraining Economic Optimism

For many homeowners who benefitted from the housing market’s bull run during the pandemic, the golden handcuffs of low mortgage rates feel less like a prize and more like a debilitating restraint. Someone who borrowed $240,000 with a 3% mortgage rate to buy a median-priced home in early 2021 has a monthly payment of $1,000. If that homeowner were to sell today and buy a similarly valued home with the same loan amount but a 7.2% mortgage rate, their monthly mortgage payment would be around $1,600, or 60% higher. Most people don’t have an extra $600 to put towards their mortgage each month, which means most homeowners can only afford to move if they are willing to buy a much cheaper home or rent instead of buying. That makes homeowners feel worse about their future economic standing.

And what about homeowners willing to bite the bullet and sell? Because of the low demand for homes, sellers are having to lower their expectations and their asking prices. In October, a record share of homes for sale had to mark their price down. Fannie Mae reports that the share of people saying it is a good time to sell a home is at its lowest point since 2017, excluding the onset of the pandemic in 2020.

No Easy Policy Solutions For Biden

Americans’ attitudes about the economy will hurt Biden’s reelection chances if he doesn’t deliver a persuasive message about how he will improve the housing market in his second term. Biden can hope that inflation dissipates causing mortgage rates to fall. A fall in mortgage rates would make homebuying more affordable in the short run. But in the long run, it would increase demand and home prices because another key driver of the affordability crisis is a severe, ongoing supply shortage.

To solve the housing shortage, Biden will need to eliminate exclusionary zoning policies that prevent more homes from being built. Unfortunately for Biden, most people oppose dense housing like apartment buildings in their neighborhoods. So solving the supply problem could come with additional voter backlash for Biden.

Biden may focus his energy on demand-side policies, which make borrowing to buy a home less costly. He could increase the mortgage interest tax deduction to offset the sting of high mortgage rates and expand down payment assistance to first-time homebuyers.

These demand-side policies could be wins for Biden in the short run. But in the long run, policies that promote demand for housing without addressing the housing market’s fundamental problem—a lack of homes for sale—will push up prices.

Regardless of politics, solving the supply problem is what’s best for the housing market, the economy and the American people. Biden has the opportunity to frame solving the housing shortage as his key strategy for delivering a better economic future to the American people.

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