It’s tough time to buy a house …a lot of headwinds … especially for those new to the real estate market.
While the outlook is for interest rates to begin to fall next year after a sharp rise over the past few years as the government moved to stop inflation caused by the pandemic … prospective homebuyers have suffered during that time … not just with high mortgage rates but high home prices. When rates are high … people who locked in low mortgage rates years earlier stay put. That cuts into the supply of available homes and sends prices up. This high-rate, high-price combination makes homebuying hard for prospective buyers … especially those who are trying to buy for the first time. Minority home seekers are hit especially hard.
Melanie Walter … the executive director of the New Jersey Housing and Mortgage Finance Agency … which helps people get into affordable housing in a variety of ways … explains what a rise in mortgage rates means to those looking for a house.
"We’ve seen basically a 40 percent increase in home prices in a little over two years and at the same time we’ve seen rates more than double you’re now paying double on your mortgage.That’s what a doubling of rates means a $1000 mortgage is now a $2000 mortgage every month."
When home buying is difficult … people turn to renting … or they are already renting and stay there. The demand sends rents soaring and means people can’t save for a downpayment.
Owning a home … Walter says … means more than just a place to live. It’s a creator of wealth:
"If your family has not had a history of homeownership whether that is by virtue of redlining or career paths and just general opportunity if your family has not owned a home before they are generally going to be about the value of a house poorer than a family that has historically."
When homeownership goes wrong and foreclosure results … the effects reach farther than the individual homeowner involved. Walter cites a contagion effect … where houses within 200 feet of that house … yes she says it’s that specific … suffer a 2 to 3 percent drop in value. This … she says … is of course more significant in cities … such as Newark:
"Dense urban centers, there’s a lot more houses. And that means there’s a lot more families that are impacted by a foreclosure or a vacancy so when we’re talking about supporting minority homeownership it’s not just about the access and the opportunity for that individual it’s also about creating and preserving equity and opportunity for the rest of the community."
David Troutt is a law professor at Rutgers and director of the Center on Law in Metropolitan Equity there. In May of 2022 he wrote a report examining homeownership in Newark called “Who Owns Newark?” which highlighted some disturbing trends:
"Newark may actually lead the country among municipalities in the extent of single-family home purchases by institutional investors."
Troutt’s report found that anonymous investors accounted for almost half the sales of 1-4 unit homes in Newark … generally in Black neighborhoods with substandard housing.
"This represents a massive market shift in which a much larger percentage of the homes that first time buyers would expect to purchase are being bought up and the prices dictated by institutional investors."
The result of course is fewer homes available for first-time buyers and a further restricting of homeownership to a narrower segment of the population. He says we need a broader spectrum of homeowners:
"Without it not only do we have more wealth inequality but we have greater housing instability and less for each generation to pass on to the next while a more concentrated few retains wealth that used to be spread more broadly."
Walter says the kind of investment communities really need is still lacking:
"Even if you assume that today there was no issue and I don’t think you can truly assume that no redlining or no housing discrimination happening today on appraisals or anything else you still have disinvestment in specific communities and a lack of capital access which means that individual homebuyers who are buying their first home today start in a worse position."
She says the government can help out here … and is … pointing to three programs in New Jersey designed to help people get into homes and prevent them from losing what they’ve bought. There’s a foreclosure intervention program funded by 25 million dollars in American Rescue Plan money which goes to rehabilitate vacant properties and sell them to first-time homebuyers … an emergency rescue program for mortgages to help those in danger of losing a home … and a down payment assistance program.
But the response from those who might benefit most she says … is often guarded:
"Sometimes there’s a real distrust of some of these government programs something that’s been critical and I think sometimes larger banks fall short on something that we work very hard to do is to do outreach with faith based organizations community based organizations work with the Chambers of Commerce you’re walking into neighborhoods where sometimes “I’m from the government, I’m here to help” was the worst possible thing you could hear."
Troutt says there is a role for the government here that does not depend on a response from the public:
"We do all kinds of things to rein in and regulate markets on behalf of the public interest and this is one of those times when we’ve seen significant structural changes that require that we do more."
Figures from the National Association of Realtors from earlier this year show that while the US homeownership rate rose to 65 percent in 2021, the rate among Black Americans lagged significantly at 44 percent … has risen less than a half percent over the last 10 years … and is almost 30 percentage points less than that of White Americans at 72 percent. It’s the biggest Black-White homeownership rate gap in a decade.
NOTE: Janice Kirkel's report is part of WBGO's Diversity, Equity and Inclusion feature series made possible in part by a grant from the Fund for New Jersey.