Millions of homebuyers in America have been priced out since the start of the year — economists say it's likely to get worse

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Millions of homebuyers in America have been priced out since the start of the year — economists say it's likely to get worse
© Rachel Linehan Rachel Linehan and her partner, Dan, have seen their budget drop nearly $100,000 since January. Rachel Linehan

  • More than 9 million homebuyers in America have been priced out of the market since January.
  • A rise in all-cash offers and investor purchases is mainly hurting first-time buyers’ chances.
  • But prices aren’t expected to come down, with the supply of homes for sale in the US at record lows.

Millions of homebuyers in America have been priced out since the start of the year — economists say it's likely to get worse
Millions of homebuyers in America have been priced out since the start of the year — economists say it's likely to get worse
Millions of homebuyers in America have been priced out since the start of the year — economists say it's likely to get worse
Millions of homebuyers in America have been priced out since the start of the year — economists say it's likely to get worse
Millions of homebuyers in America have been priced out since the start of the year — economists say it's likely to get worse
Millions of homebuyers in America have been priced out since the start of the year — economists say it's likely to get worse
Millions of homebuyers in America have been priced out since the start of the year — economists say it's likely to get worse

The 6 cities and states trying to stop landlords from jacking up rent prices

  • Rent and evictions are on the rise all over the country.
  • At least 6 cities and states in the US are implementing or expanding rent control. 
  • Rent control, or government intervention in the price of rent, is banned in 37 states. 
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Rent is getting more expensive everywhere. 

In most US states and cities, there’s not a whole lot the government can do about it. That’s because rent control is prohibited in 37 states.

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But the surge in housing costs amid the ongoing pandemic has led several jurisdictions to take another look at new laws to clamp down on rent increases, even as landlords fight back — and in some cases taking legal action. 

In states like Massachusetts, where tenants’ rights groups are clamoring for the statewide ban on rent control to be lifted, evictions are rising. They’ve been increasing throughout the country as well, after the federal pandemic moratorium on evictions ended at the end of 2021. And rent continues to surge at record rates as people get booted from their homes. 

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Landlord groups argue that rent control will reduce the available supply of apartments, and that property values and tax revenue will decrease. There is limited empirical data about whether that’s true, but detractors argue that rent control reduces incentives for landlords to supply housing, with some case studies showing that the lost rental housing supply drives up market rents in the long run in units not protected by rent control. 

An Urban Institute study from 2019 concludes that more research needs to be done before evaluating rent control either way.

“If rent control is judged on its ability to promote stability for people in rent-controlled units, evidence has generally found it to be successful,” the study said. “However, evidence is also mixed for rent control’s ability to promote economic opportunity or reduce racial disparities.” 

Rent control regulations exist in five states, as well as Washington, D.C: New York, New Jersey, California, Oregon, and Maryland. The Wall Street Journal reported this week that regulations being proposed throughout the country would allow landlords to boost monthly rents by no more than 2% to 10%. Arizona, Florida, Hawaii, Illinois, Kentucky, New Jersey, New York, Washington and Massachusetts have all introduced proposals to add or expand rent control protections, but these new proposals haven’t cleared their legislatures. 

Here are 6 places making progress on their bids to increase rent control measures. 

Read the original article on Business Insider

Boston, Massachusetts

New Boston Mayor Michelle Wu campaigned on bringing rent control back to the city, and a poll shows that a majority of Bostonians support the move. 

Local rent controls were banned almost 30 years ago in a statewide referendum, however. State Democrats are currently advancing a bill that would repeal it, although the state’s Republican governor said he is unlikely to sign off on such a law, which would give cities like Boston the option to implement rent control. 

“Cities across the country use rent stabilization as one tool among many to protect tenants and keep families in their homes,” Wu said last week, after launching a Rent Stabilization Advisory Committee. “The majority of Boston residents and families are renters. If we aren’t willing to take on the rent increases that are driving families out of Boston, then we aren’t meeting the needs of our neighborhoods. 

Colorado

State House Representative Andrew Boesenecker co-sponsored a bill to limit mobile-home lot rent increases by either 3%, or by the local inflation rate in a given year, whichever of the two is higher. 

“For mobile home park residents, there’s no relief valve,” Boesenecker said, saying residents are often “handcuffed” to land they don’t own. That’s because residents of mobile-home lots may own the homes themselves, but can’t necessarily afford to transport them. There are few other affordable options, meaning they’re stuck on the property. 

Sponsors say that it’s a response to the influx of wealthy investors buying mobile home parks and greatly increasing rents, CPR News reported

The bill also proposes substantial changes to Colorado’s  “opportunity to purchase” law, which allows mobile community renters a chance to bid on their homes if they’re put on the market. The proposed change is meant to give residents more time and money to compete with other buyers. 

Florida

In Florida, lawmakers in Miami and Tampa have considered declaring housing emergencies to pass rent control, as rents in the state have risen as much as 30% in the past year.

2022 marks the third year in a row that Florida State Senator Victor Torres has filed a bill that would give rent control power to local governments, although he has said that it has gotten no traction. 

“We need compromise and we need to have these landlords understand the hardship that most of these families are going through,” he told ABC News. 

Montclair, New Jersey

Montclair, New Jersey, enacted a pandemic rent freeze that must be reauthorized every three months. The most recent extension expires on March 31. 

And landlords in the town have been fighting back. Over the last two years, a group of landlords has been challenging the rent control ordinance passed by the town council, repeatedly suing the town after rent control negotiations failed. 

The rent control freeze limits yearly rent increases to 4.25%, 2.5% for senior citizens. It also prevents rent increases above 10% after a tenant vacates a unit. The law, however, only applies to properties with four or more units built before 2008.

Minnesota

In November, St. Paul and Minneanapolis voters passed a rent control cap preventing rent from increasing more than 3% annually in most places.

Additionally, applying the cap to both new construction buildings and older vacant units gave St. Paul one of the most restrictive rent control laws in the entire country. 

“Passage of this proposal marks a significant step towards addressing the affordable housing crisis in St. Paul and puts our elected leaders on notice that renter protections and housing stability are essential priorities for voters,” said Tram Hoang, campaign manager of pro-rent control group Keep St. Paul Home, during a postelection press conference in November. 

But this week, a Minnesota Senate panel voted to remove rent control measures in Minneapolis and St. Paul and block ballot questions on the issue in the future. The move would apply retroactively, overturning voter-approved measures in the Twin Cities. The bill is proceeding to the Minnesota Senate for a vote. 

Santa Ana, California

California is one of the few states that have blanket rent control measures. It limits annual rent increases at 5%, plus the change in the regional Consumer Price Index (CPI), or no more than 10% of the lowest gross rental rate a tenant was charged during any year-long period before the date of the increase.

In Santa Ana, however, local officials go even further. Last year, Santa Ana instilled a cap of 3% a year for apartments built before 1995, in addition to the regional inflation. 

Landlords can petition for an exemption from the law if they prove that raising rent on their tenants beyond 3% will provide a “fair and reasonable return” on their properties. 

Rising US interest rates designed to slow inflation have priced more than 9 million homebuyers in America out of the housing market since the start of the year, according to a leading property economist.

Nadia Evangelou, senior economist and head of forecasting at the National Association of Realtors, said more than 3 million millennials had been priced out of buying a home since January, with the average monthly price of paying off a home in the US rising by nearly $270. 

‘It’s pretty demoralizing’

The US Fed has increased interest rates twice this year, with six more rate hikes expected by the end of 2022. That has already led to a big jump in mortgage costs, with the 30-year fixed-rate average now exceeding 4.7%, after beginning the year around 3%. 

Evangelou said affordability had fallen through the pandemic as house prices rose more quickly than incomes. At the same time, more people were buying second homes with their increased equity, while cash transactions and purchases by investment groups jumped.

In California, the NAR said the monthly cost of paying off the median mortgage is more than $500 higher than in January, with fewer than 30% of first-time buyers in the state able to buy a home.

The NAR estimates investors make up 22% of buyers across the US, compared with 15% a year ago, while all-cash offers account for 27% of purchases against 19% in early 2020. Conversely, the share of purchases by first-time buyers fell to 27% from 33% last year.

“As more people compete for that smaller pool of homes, prices will go up,” Evangelou said. 

But although housing affordability may be plummeting, that doesn’t mean Americans are likely to lose their homes if the real estate bubble bursts, Insider’s Ben Wick reported.

Still, many homebuyers remain frustrated at the situation.

Actuarial accountant Rachel Linehan, and her partner Dan, both 23, have been trying to buy a home in Framingham, Massachusetts, for the last four months. In that time, she said that a “pretty brutal” market of rising rates had shrunk their budget by up to $100,000, limiting the range of available homes in their preferred area. 

Linehan recalls arriving at an open house viewing and waiting in a line stretching around the corner. She felt she and her partner had a “pretty good shot” of buying a home, with a good salary, no debt, and no kids. 

“It’s pretty demoralizing. We went in feeling pretty hopeful but that hope has diminished over time to the point where we are feeling pretty small,” she said. “We’re getting to the point where we might give up soon.” 

Low supply means prices aren’t likely to fall soon

A falling margin of affordability has been exacerbated by supply shortages, which Evangelou said are the worst on record, with 850,000 homes for sale in January.

She said it means the availability of homes for middle-class buyers has fallen 60% since the beginning of the pandemic, with one affordable listing for every 125 households now compared to one for every 45 households in 2019. 

Jonathan Tatum, a 27-year-old revenue data manager, finds he is routinely competing with up to 40 other buyers to purchase a home in Atlanta, Georgia.

Buyers’ newfound willingness to pay the appraisal gap, which is the difference between the bank’s valuation of a home and the price under offer, was locking Tatum out.

He said: “If I see a home that’s $550,000 home, even though I can afford the mortgage and the monthly payment, there’s no way I could afford a $75,000 payment and a $50,000 appraisal gap on top of that.”

Other obstacles, like a growing trend of unpaid rent-back agreements, where sellers demand to live in their home after sale rent-free until they find a new property, made most offers a non-starter, he added.

‘Waiting is only going to make it worse’

Tatum, who has grown numb to rejection, sees no other option than to continue to try and buy, having seen prices rise since he graduated from college in 2018.

He said: “I don’t see people magically wanting to not own a home. If you want a home, it’s probably because you don’t want to rent anymore.

“Waiting is only going to make it worse.” 

It is a sentiment echoed by Evangelou, with the NAR forecasting sustained price rises, though at a slower rate of between 4% and 6% this year. 

“If you are in a position to buy a home, if you feel financially secure, just go for it. Because don’t expect mortgage rates to come down,” Evangelou said.

Economists at the NAR say the only solution is for a strong push to build more houses in the US to accommodate a growing market of priced-out Americans. Until then, growing numbers will continue to fight for a shrinking stock of homes.

Read the original article on Business Insider

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