More and more lower-income or even middle-class households are going to be renting the American dream. This is bad for the economy, and it should be a red flag for our industry.

This week saw dual record-breaking highs in housing — and depending on your perspective, this might be very concerning. However, we knew it was trending this way, but it’s pretty amazing to note these milestones — and very concerning to see the impact and repercussions for first-time homebuyers.

Interest rates rise

This week, our policymakers are having a two-day meeting where they are widely expected to raise interest rates by half a percentage point. This will be the most significant rate hike in more than two decades if it comes to fruition. It’s a move aimed at slowing down inflation, and it may have that effect on some aspects of the economy — but the real problem may be that the dollar is just devalued.

Either way, prices had surged 6.6 percent during the 12 months ending in March. This is more than three times the Fed’s target rate for inflation and the sharpest increase in prices since 1982.

Median home price record high

This week also marked yet another record high for the median home price in the U.S. at $425,000. This represents an increase of $100,000 since immediately before the pandemic 26 months ago. Unofficially, the past two years appear to be the largest increase in home prices in decades or a generation. It’s more and more a case of the “haves” and the “have nots.”

Deep impact

High rates and high prices do not have a huge impact on those of us who own homes. In fact, my neighbors are giddy each time a listing in our neighborhood goes online. Current homeowners think it’s impressive to see their “wealth” build.

However, we are Gen X (Remember us? Grunge, Nintendo and AOL? That’s us.), and homeownership has been a different experience for us than our younger counterparts.

Rising rates and prices are a huge deal for the largest generation, millennials, who own the lowest percentage of homes. Purchasing a home was already tricky for low-income or debt-strapped buyers, but now, in less than two years, affordability is out the window for many Americans.

It seems more and more that lower-income or even middle-class households are going to be renting the American dream. This is a new low for our economy and a troubling sign for the people of this generation who hope to get out of debt or grow generational wealth. But also, for those who earn money selling single-family housing — this is a red flag. 

Predicting the future

The rate rise will officially double the cost of a loan from one year ago, as we trend to 6 percent interest rates on conforming 30-year home loans. This will surely slow demand for housing, and increase supply, slowing down the house price escalation, right?

Not so, says Altos Research CEO Mike Simonson.

“Most buyers buy based on life events. Rising rates don’t lead to a crater in demand or a flood of inventory. Rates don’t change those people’s life events.” So Simonson thinks demand will continue to outpace supply even with higher prices and higher interest rates. He predicts a slight increase in supply by the end of the summer — as is typical for housing seasonality.

The housing industry needs a solution for first-time homebuyers that does not flood the market with cash, raising prices and effectively pricing out those in the on-deck circle. Recent cash-oriented solutions have had a terrible long-term impact. NAR needs to make finding a solution for first-time homebuyers a priority. 

On the industry relations podcast with Greg Robertson and Rob Hahn, they suggest this starts with bringing in younger leadership to NAR committees — dropping the average age of members by more than 20 years. The current leadership is not focused on this threat to our industry — and younger leaders understand the severity of the situation. 

What’s the solution?

So I’ll ask you what your clients ask you. With more single-family residential transactions than ever (6.2 million) last year, house prices skyrocketing and interest rates doubling — how do we help first-time homeowners without driving up costs? 

Chris Drayer is co-founder of Revaluate which segments consumers for marketers by propensity to move.

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