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The theme for the 2016 housing market is “the challenge of housing affordability coupled with expected modest economic growth,” according to a recent report from Fannie Mae’s Economic and Strategic Research (ESR) Group. The research group asserts that continued labor market demand will result in higher wages and job security in the coming year, and that banks will release more flexible lending programs making the process of obtaining mortgage loans easier for millions of Americans. These characteristics indicate a housing market on the upswing with happy, capable buyers; but it’s not that simple.
The report delineates, “Despite these positives, several opposing factors point to constrained housing affordability, particularly for first-time homebuyers. These factors include continued strong home price appreciation that outpaces income growth, as well as rising mortgage rates. Measures previously available to homebuyers to mitigate the impact of rising interest rates and strong home price gains, such as certain types of adjustable-rate mortgages, are no longer broadly available.”
The elevated home prices and rigid mortgage rate programs described above mean that essentially, the progress people are making in jobs and salary are all but being undone. Can progress in wages and job growth be called progress if the buying power circumstances of these workers remain predominantly unchanged? The burden of the hopeful homebuyer is further compounded by the fact that higher rents will continue their starring role as a prime inhibitor of renters’ down payment savings.
Addressing this affordability challenge and its effect on housing, the report concludes, “Because of these affordability challenges, we believe that the home sales market will continue to recover along with the broader economy in 2016, but that the pace of improvement will moderate.” So moderate that total home sales are not expected to exceed an improvement mark of four percent.
What should be done to make the dream of homeownership possible for hardworking people who deserve it but are victims of current housing market circumstances? Will hard work and savings no longer be enough to buy a home? Is the U.S. doomed to create a generation of renters incapable of buying homes?