Rising Home Costs Make Homeownership A Hurdle Amid Federal Interest Rate Changes

As BLACK ENTERPRISE previously reported, interest rates for homes adjusted by the Federal Reserve are having an adverse effect on the home market, but new data illuminates just how bad the problem is becoming.

As Fortune reported, the initial cost of homeownership is so high that it would take a combination of pay rising by 55%, interest rates falling by 4%, and home prices falling by 35% just for it to be attainable for most Americans.

According to Andy Walden, vice president of Enterprise Research at ICE Technologies, “But just imagine house prices falling 35% or your boss giving you a 55% raise. Not likely, right? Those are massive movements that we’re talking about. None of them are going to happen in a vacuum. None of those one single factors is going to make the move.”

Sam Khater, chief economist at Freddie Mac, says the biggest problem affecting the market is low inventory.

“Unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory,” Khater told Fortune. ”These headwinds are causing both buyers and sellers to hold out for better circumstances.”

On Zillow, a marketplace style listing of homes in a given area or zip-code, the average price of homes listed increased by 4% between the months of July and August; and though there has been a small increase in the number of homes available, according to the website’s data, this does not necessarily mean that there is relief coming to the housing market.

Walden said that it is a trend worth monitoring, however, even if it may not be a prediction that the market is about to improve immediately,

“We’ll be watching that inventory data really, really closely,” he said. “That’s really going to tell us where home prices are going late this year.”

According to data from Black Knight, a real estate data firm now owned by ICE, a quarter of new home buyers are paying at least $3,000 a month on their loans for their new homes as recently as July. What this means in real-time is that they are paying $800-$1,000 more a month, in addition to paying at least 60% of their income on mortgages alone. The result is that fewer people are actively searching for homeownership and that trend, experts say, is likely to continue unless these factors that are driving up the cost of homeownership change to benefit the majority of Americans.

Homeownership is the most unattainable for Black and Latino Americans, as their rates of homeownership were 25% lower than the rates for white homeownership in 2022, according to Harvard’s Joint Center for Housing Studies. The end of pandemic-era housing assistance programs, they say, has helped create a housing market that is largely prohibitive.