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As the housing market faces a divide in affordability, middle-income households are being priced out

Despite the current housing boom being more stable and posing fewer systemic risks than the previous boom in the mid-2000s, first-time homebuyers and middle-income households are still facing barriers and difficulties in making any moves. 

In 2020, sales of previously owned U.S homes surged to their highest level in 14 years, as some urbanites left their city-centric lifestyles and moved into the suburbs while working from home. The average  30-year mortgage rate dropped 12 times  to boost the housing market as well. A mortgage credit availability index from the  Mortgage Bankers Association plummeted roughly 33% between February and August in 2020, the lowest it has been since 2014. While low mortgage rates are helpful, median sales prices for homes are rising so rapidly that the actual savings for buyers are limited. 

Less expensive homes are becoming harder to find, and first-time homebuyers are struggling to afford down payments. In its recent  2021 Priced-Out Estimates study, NAHB stated that based on their income,  75.1 million households  in the U.S. could not afford a median-priced ($100,000) new home. The study found 21.1 million households have incomes below this threshold. Redfin’s chief executive stated in a WSJ article that the  “housing market has become a luxury good… the economy seems to have officially split in two. There is so much hardship in one part, and then there’s just an absolute mad dash to buy houses in the other part.” 

COVID’s essential and front-line workers are particularly struggling; nursing aides, stock movers, janitors, retail workers and other  occupations deemed essential are unable to afford homes in any region, whether it be with a 10% or 3% down payment. According to the  Urban Land Institute’s 2021 Home Attainability Index, the most severe cost burdens among middle-income households are predominantly found in the most populous regions. Restaurant wait staff have been hit the hardest, with only 12.1% of them able to afford a one-bedroom apartment across all indexed regions. 

NAHB stated that the elevated price of  lumber is also adding  approximately $24,000 to the price of a new home, and demand is so high that many builders are limiting the number of homes sold at a time to ensure they don’t sell more than they can build. These limits have led to rising new home prices, with  the median new-home sales price hitting $346,400 in January, up 5.3% from January 2020

In addition to rising housing costs,  home insurance  prices have also seen  an inevitable uptick due to the recent hurricane and wildfire season and are predicted to keep rising  as the industry deals with climate change.  2020 was the most active hurricane season on record, with 30 named storms. As insurers identify climate change as their primary concern, annual premium rates continue to skyrocket in states at risk of hurricanes and wildfires (despite low costs to repair and build). Average home insurance premiums have reached more than  $3,000 a year

Although some mortgage providers are tightening lending standards during the time to slow down application volumes, mortgage rates are predicted to stay low until 2023. The widespread distribution of the  COVID-19 vaccine is also expected to get current homeowners more willing to sell, which will boost inventory and give buyers more options and breathing room in the market.

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The Zebra is an independent insurance advisor and quote comparison site with headquarters in Austin, Texas. Utilizing its real-time quote comparison tool, The Zebra partners with companies such as Allstate, Liberty Mutual, and Progressive to help consumers browse pricing, coverage, and service level for both home and auto insurance policies.