Across the country, roughly 65% of households are priced out of the median-priced new home. Incomes have not kept pace with elevated home prices and higher mortgage rates, putting homeownership further out of reach for millions of Americans.
For those who can afford a new home, many don’t want to spend 40% of their income on housing, and are likely waiting for rates and prices to drop. Many prospective buyers are waiting longer and longer until their finances are more secure; the average age of a new homebuyer is over 40 years old.
For younger and lower-income buyers, the challenge is even greater. They are entering a market defined by historically high interest rates and a limited supply of affordable homes. Many of the entry-level housing options that helped previous generations build wealth simply aren’t available today.
The frustrating part is that solutions to the affordability crisis are within reach. But federal policy, housing finance, and construction practices have been slow to adapt and are overlooking tools that have historically helped address these exact challenges.
One of the biggest drivers of the affordability problem is the lack of lower-cost housing options. Today, roughly 97% of newly built single-family homes in the United States are traditional “stick-built” homes. Alternative forms of housing, such as manufactured, modular, and kit-built homes, remain significantly underutilized, difficult to permit, and often stigmatized as inferior.
The stigma is ironic, considering that manufactured and kit-built homes have historically been a bedrock of affordable construction since the first half of the 20th century. In fact, some of the most sought-after homes in valuable housing markets today began as kit-built properties. San Francisco’s iconic Craftsman bungalows, for example, were originally ordered through catalogs and assembled on site.
Another, less discussed element of our housing crisis is the historic societal shift away from multi-generational housing. Most homebuyers are looking to house themselves, their domestic partner, and any children they have, but this was not the norm for most of human history, where parents, grandparents, and children all lived under a single roof. When large, multi-generational households are an option, it shifts buying trends, and household culture, in a healthy direction.
Not only do young prospective buyers have additional opportunities to build equity before buying their own homes, but seniors are more integrated into their families and can live healthier, happier, less expensive lives without the need for costly senior care. With supply tight and the population of homeowners across the nation aging, multi-generational living needs serious consideration as an option for homeowners. The multi-generational model becomes even more feasible if regulations on accessory dwelling units (ADUs) are lifted.
Yet even if culture shifts, construction methods diversify, and supply expands, the affordability question is still heavily shaped by the cost of financing. In today’s high-rate environment, mortgage rates are locking many otherwise qualified buyers out of the market. Additionally, wage growth has been greatly outpaced by inflation, almost doubling living costs since COVID.
Historically, policymakers have used tools to help address this challenge by increasing liquidity and lowering borrowing costs. One of those tools is quantitative easing (QE), which includes the strategic purchase of mortgage-backed securities (MBS). Following the 2008 financial crisis, and again during the COVID-19 pandemic, the Federal Reserve used this approach to stabilize housing markets and bring down mortgage rates. In fact, QE has historically been the only effective lever to increase mortgage affordability. It’s also historically yielded profits for the Federal Reserve with minimal downside.
While the Federal Reserve has historically played the central role in these purchases, other federal housing finance institutions could also help support market stability. Agencies such as the Federal Housing Finance Agency (FHFA) can help maintain liquidity and keep mortgage markets functioning efficiently by directing the Fannie Mae and Freddie Mac to conduct, strategic, pre-announced purchases of MBS that align with their guidelines. This will help avoid creating the same conditions that precipitated the 2008 housing crisis. In addition, the U.S. Treasury, through its authority under the Preferred Stock Purchase Agreements, has the ability to raise the level of MBS they are able to purchase and hold.
Importantly, today’s environment does not require the scale of intervention seen during past crises. Strategic, measured actions, combined with policies that expand housing supply, can make a meaningful difference.
The housing affordability crisis did not emerge overnight, and it will not be solved with a single policy change. It will require a combination of smarter housing construction, diversified housing types, and responsible financial tools that support access to mortgages.
If we are serious about restoring the American pathway to homeownership, we must be willing to use every tool available. By expanding the types of homes we build and ensuring mortgage markets remain accessible through thoughtful, sustained intervention, we can bring a new generation of buyers back into the market, and strengthen the foundation of the American housing economy in the process.
Stan Holland is the President of Atlantic Bay Mortgage Group.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: zeb@hwmedia.com.
