Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: About eight years ago, Andrew O'Neill achieved the American ideal
Speaker 2: that so many strive for. He and his wife bought
Speaker 2: their first home, a condo in Washington, d C.
Speaker 3: And they added us the keys, and we were like,
Speaker 3: what did we just do? Was that a good idea
Speaker 3: or not?
Speaker 2: He says. They used a first time buyer grant program
Speaker 2: to help with the down payment. Their monthly costs were
Speaker 2: about the same as their monthly rent had been. A
Speaker 2: few years later, they sold that condo and upgraded to
Speaker 2: a townhouse.
Speaker 3: And because real estate was going up so fast, we
Speaker 3: did make a good profit on our condo after only
Speaker 3: a couple of years.
Speaker 2: But in twenty twenty one, Andrew and his family had
Speaker 2: to relocate to Westchester County, just outside of New York
Speaker 2: City for work. Selling the townhouse was no problem. They
Speaker 2: got an offer that was seventy five thousand dollars over
Speaker 2: their asking price before it even hit the market. Their
Speaker 2: plan was to rent for while they got to know
Speaker 2: the area, and then reinvest their profits into a new
Speaker 2: house in Westchester.
Speaker 3: Our mortgage in DC was twenty six hundred dollars. I
Speaker 3: thought our mortgage would certainly be more, but I was
Speaker 3: thinking more would be like thirty five, thirty eight, four thousand.
Speaker 2: What they did not account for was a major c
Speaker 2: change in the housing market within that year they planned
Speaker 2: to spend renting. The Federal Reserve started increasing interest rates.
Speaker 2: In January of twenty twenty one, the thirty year fixed
Speaker 2: mortgage rate was two point six five percent. Two years
Speaker 2: later it had more than doubled.
Speaker 3: Just watching the interest rates go I was looking and
Speaker 3: I was like, oh, houses that are okay, like subpar
Speaker 3: houses would be six thousand, and that blows our entire budget.
Speaker 2: It's an electioneer, and the economy is the top issue
Speaker 2: for voters. Vulnerabilities in the housing market will be guiding
Speaker 2: Americans as they choose a president, and for a growing
Speaker 2: number of them, like Andrew and his wife, home ownership
Speaker 2: might not make sense anymore. For now. They've gone back
Speaker 2: to renting, and they're navigating a tumultuous market that has
Speaker 2: everybody feeling the squeeze.
Speaker 4: Today on the.
Speaker 2: Show, we look at why housing in America is so
Speaker 2: expensive and how frustrations over rent and mortgages are shaping
Speaker 2: the twenty twenty four presidential race. I speak with Sean Donovan,
Speaker 2: who was Secretary of the Department of Housing and Urban
Speaker 2: Development in the Obama administration.
Speaker 4: I've never seen the affordability crisis this bad, And with a.
Speaker 2: Real estate economist who's been looking at all the numbers
Speaker 2: from Bloomberg's Washington Bureau. This is the Big Take DC podcast.
Speaker 2: I'm Salaiah Mosen. Thirty years ago, the median US household
Speaker 2: income was about thirty two thousand dollars. Census Bureau data
Speaker 2: also shows that the median home cost was one hundred
Speaker 2: and thirty thousand, So in nineteen ninety four, Americans typically
Speaker 2: spent about four times their household income buying a home.
Speaker 2: I think the latest Census data in twenty twenty two
Speaker 2: it was up to six times.
Speaker 1: The main problem with the current housing market is a
Speaker 1: lack of homes for sale, and that lack of homes
Speaker 1: has made home values higher.
Speaker 2: Darryl Fairweather is the chief economist at Redfin, a real
Speaker 2: estate brokerage that collects data on the housing market. I
Speaker 2: asked her how we got here. She says that we
Speaker 2: need to look back at the two thousand and eight
Speaker 2: financial crisis.
Speaker 1: The two thousand and eight recession started in the housing market.
Speaker 1: The housing market had a bubble, and then the Federal
Speaker 1: Reserve started to raise interest rates, which popped that bubble,
Speaker 1: and everybody who thought that home values were only going
Speaker 1: to rise ended up in a hard situation. After the
Speaker 1: Great Recession, we stopped prioritizing building housing. People were kind
Speaker 1: of scared off of that industry.
Speaker 2: So housing supply was low. Ten years later, right around
Speaker 2: when COVID hit to keep the economy afloat during the pandemic,
Speaker 2: the Federal reserve interest rates to make borrowing money cheaper.
Speaker 2: That meant mortgage rates dropped.
Speaker 1: And then that turned into a frenzy where people were
Speaker 1: really eager to take advantage of low rights. People were
Speaker 1: moving because of life changes like remote work allowing them
Speaker 1: to live in new parts of the country, or people
Speaker 1: reevaluating what they wanted out of a home because of
Speaker 1: the pandemic.
Speaker 2: Think of all the people who moved out of major
Speaker 2: cities when they realized they didn't have to commute into
Speaker 2: an office every day. They could live near family or
Speaker 2: get space with the backyard, and they could get a
Speaker 2: sweet deal on a mortgage.
Speaker 1: So there was all this demand, and then that caused
Speaker 1: prices to go up But then because of all that frenzy,
Speaker 1: not just in housing market, but the economy more broadly,
Speaker 1: the FED had to raise interest rates.
Speaker 2: The FED raised interest rates to try and tackle inflation.
Speaker 2: That meant all the demand for housing which drove up
Speaker 2: home prices, was now coupled with high borrowing costs.
Speaker 1: High mortgage rates. Mortgage rates of around seven percent four
Speaker 1: thirty year fixed rate mortgage whereas back in twenty twenty
Speaker 1: one mortgage rates were at around three percent.
Speaker 2: That can add thousands of dollars to someone's monthly mortgage payments.
Speaker 1: So it lowers the budgets for home buyers and actually
Speaker 1: kick some home buyers out of the market altogether if
Speaker 1: they can't find anything that meets their needs that also
Speaker 1: meets their budget.
Speaker 2: This year we saw the rate of cash buyers reach
Speaker 2: the highest level in the last decade. Those are the
Speaker 2: home buyers who can pay the full price outright. Borring
Speaker 2: costs have made it really hard for people who need
Speaker 2: to take out mortgages to afford a home. When the
Speaker 2: Fed's rates went up.
Speaker 1: Housing market abruptly started to slow down, So twenty twenty
Speaker 1: three was the fewest home sales on record, at least
Speaker 1: as far as back as we measure things to twenty twelve.
Speaker 2: That means more and more people are turning to renting instead,
Speaker 2: people like Andrew O'Neil and his family. But the rental
Speaker 2: market is understrained too, and.
Speaker 4: Eighteen percent jump in rents year over year during COVID
Speaker 4: is something we'd never seen before in the history of
Speaker 4: keeping track.
Speaker 2: That's Sean Donovan, former Secretary of Houses an Urban Development
Speaker 2: or HUD under President Obama. He served during the height
Speaker 2: of the housing crisis, in the aftermath of a two
Speaker 2: thousand and eight financial meltdown, and now he sees what
Speaker 2: he calls an affordability crisis today. He works for Enterprise
Speaker 2: Community Partners, a nonprofit organization that focuses primarily on improving
Speaker 2: access to housing through the rental market. He said, high
Speaker 2: rents are a big hurdle for people hoping to buy.
Speaker 4: Traditionally, the pathway the ladder looks like you rent for
Speaker 4: a while, you are able to save enough money every
Speaker 4: month to put together that down payment. As rents have increased,
Speaker 4: that savings is just harder and harder for folks to achieve.
Speaker 2: There's a reason that home ownership getting on the property
Speaker 2: ladder has been held up as this marker of progress
Speaker 2: toward achieving the American dream.
Speaker 4: We've traditionally thought about home ownership as our primary way
Speaker 4: to build wealth.
Speaker 2: That's worked so well, in fact, that the wealth gap
Speaker 2: between homeowners and rent has never been higher. In the
Speaker 2: past three decades, the average wealth of homeowners increased by
Speaker 2: almost nine hundred thousand dollars. For renters, the increase is
Speaker 2: only by fifty six thousand.
Speaker 4: There's plenty of data that shows that our economic mobility
Speaker 4: has slowed down and that moving up the economic ladder
Speaker 4: is harder and harder. In the US, I've never seen
Speaker 4: the affordability crisis. This bad housing has become an issue
Speaker 4: that elected officials are working on all over the country
Speaker 4: because they're responding to their constituents who are saying this
Speaker 4: is one of the primary challenges I'm facing right now
Speaker 4: is making my mortgage or paying the rent.
Speaker 2: So where do we go from here and whose problem
Speaker 2: is it to fix? The Federal Reserve or elected officials
Speaker 2: in government that's coming up. There's a lot that can
Speaker 2: tributes to the housing problem in the US, but you
Speaker 2: can boil most of it down to two key economic factors.
Speaker 2: High interest rates driving up mortgages and low housing supply
Speaker 2: driving up home costs. When it comes to the first
Speaker 2: of those two problems, you'd think it's up to the
Speaker 2: Federal Reserve to solve.
Speaker 1: The FED can't do anything to undo those problems. Unfortunately,
Speaker 1: they can't lower rates again because it would risk more
Speaker 1: inflation of the rest of the market. So the best
Speaker 1: you can really hope for for them is that they
Speaker 1: just create stable conditions in the overall economy.
Speaker 2: Redfinn's Daryl Fairweather Again. Last week, Chair J Powell announced
Speaker 2: the Fed's latest rate decision, and people were hanging on
Speaker 2: his every word to hear what he had to say
Speaker 2: on housing and interest rates.
Speaker 1: Lower rates would help builders because they have to borrow
Speaker 1: money for their projects, but would also spurred demand and
Speaker 1: that would accelerate prices as well, So it pushes both
Speaker 1: ways on prices in the long run when it comes
Speaker 1: to interest rates, and it's not really something that can
Speaker 1: be addressed through monetary policy.
Speaker 2: Plus it's partly cyclical. Rent prices factor into the Fed's
Speaker 2: inflation numbers, so as long as they stay high, so
Speaker 2: does inflation, and that means the Fed's work to tame
Speaker 2: inflation continues, so it can't lower rates just yet. That
Speaker 2: brings us back to the lack of housing supply. After
Speaker 2: the two thousand and eight housing crisis, Fairweather says, home
Speaker 2: construction slowed. That became a real problem in cities like
Speaker 2: San Francisco, where people flocked for jobs during the tech boom.
Speaker 1: So a lot of people who were dealing with the
Speaker 1: recession were going to San Francisco looking for higher paid jobs,
Speaker 1: and that led to an increase in home values. And
Speaker 1: at the same time, people were really resistant to building
Speaker 1: more housing for all of people coming into San Francisco.
Speaker 2: Many San Francisco residents didn't want their home prices to fall.
Speaker 2: It was a classic example of a not in my
Speaker 2: backyard mentality. Some came out against multi family buildings and
Speaker 2: other proposed measures to increase housing stock, keeping housing supply
Speaker 2: low so that prices stayed high. Good for their proper values,
Speaker 2: but not for housing access. San Francisco's population struggling with
Speaker 2: homelessness has grown to over eight thousand people, and the
Speaker 2: city has some of the highest rents in the country.
Speaker 1: It's only now that California as an entire state is
Speaker 1: starting to address this lack of housing being built at
Speaker 1: a more local level.
Speaker 4: I fundamentally believe that low housing supply is the driving problem.
Speaker 2: Former HUD Secretary Donovan again, we.
Speaker 4: Have a shortage, depending on whose numbers you're using, of
Speaker 4: five to seven million units that were short around the country.
Speaker 4: And think about this. We're never going to get to
Speaker 4: a better path on affordability, even if interest rates come
Speaker 4: down longer term, unless we can build.
Speaker 2: More, Donovan said. When it comes to the role of
Speaker 2: the federal government, its hands are largely tied. Congress can
Speaker 2: approve tax credits for developers who build more low income housing,
Speaker 2: but it takes time for those sorts of interventions to
Speaker 2: have an impact. A lot of the policy decisions really
Speaker 2: come down to state and local governments, which oversee zoning laws.
Speaker 4: We've seen this year more than thirty governors have already
Speaker 4: mentioned the importance of housing in their state of the
Speaker 4: State addresses. We're seeing states like Montana, Florida, California, Minnesota, Arizona,
Speaker 4: a very broad range of red and blue states.
Speaker 2: This includes a lot of rural places that haven't traditionally
Speaker 2: struggled with housing affordability because so many people relocated during
Speaker 2: the pandemic. This is all a problem for Biden going
Speaker 2: into an election when the economy looks good on paper
Speaker 2: but isn't feeling good for many Americans. According to a
Speaker 2: lot of polls, housing costs are among the top issues
Speaker 2: guiding voters, and it's about more than just creating a
Speaker 2: path to home ownership. Donovan says this lack of housing
Speaker 2: access could strangle the entire US economy.
Speaker 4: One of the things that makes the American economy so
Speaker 4: competitive historically is that people move to where the jobs are. Right,
Speaker 4: is that we're very flexible. We have a system that
Speaker 4: allows people to move quite easily, to sell their homes
Speaker 4: to get new mortgages, but also a really well developed
Speaker 4: rental sector across the country and.
Speaker 2: More and more.
Speaker 4: What's happening is our mobility is being constrained by the
Speaker 4: inability to find affordable housing in the places where the
Speaker 4: jobs are.
Speaker 2: The answer could be rewriting the whole American dream home
Speaker 2: ownership narrative, finding ways to make renting a path to
Speaker 2: wealth too. As Daryl Fairweather pointed out, the idea that
Speaker 2: home ownership unlocked this middle class American dream status has
Speaker 2: always been flawed.
Speaker 1: For the most part, it was only really available to
Speaker 1: white Americans. So I think the American dream has never
Speaker 1: really been fully available to everyone, and now that home
Speaker 1: values have gone up so much, it's largely been to
Speaker 1: families that have had access to home ownership for generations.
Speaker 1: If your parents were homeowners, you're going to be more
Speaker 1: likely to be a homeowner and have the wealth to
Speaker 1: do that. So now I think there's a recognition that
Speaker 1: is not really a solution to make everybody a homeowner,
Speaker 1: unless we're building homes for everyone.
Speaker 2: What's your advice then, someone who is thinking in the
Speaker 2: next eighteen months, I want to buy a house. So far,
Speaker 2: the FED is not looking to cut rates anytime soon.
Speaker 2: What's your advice to home buyers.
Speaker 1: Well, it's really difficult to time interest rates, so I
Speaker 1: would focus mostly on what can you afford given prevailing
Speaker 1: interest rates. Don't buy something more expensive than what you
Speaker 1: feel comfortable with because you're hoping that interest rates will
Speaker 1: go down later and you can refinance. There's nothing wrong
Speaker 1: with renting. There are advantages to renting, like being more
Speaker 1: flexible in terms of your location. If you get a
Speaker 1: new job, you can take it without worrying about selling
Speaker 1: your home. And if you do want to buy, I
Speaker 1: think now is a fine time to buy on. There's
Speaker 1: really an advantage to waiting because I don't see the
Speaker 1: affordability picture improving meaningfully in the next five years.
Speaker 2: Andrew O'Neil and his family haven't sworn off home ownership altogether,
Speaker 2: but he says that for now he's enjoying some of
Speaker 2: those best and if it's of being a renter, not
Speaker 2: having to mow the lawn, having someone else to call
Speaker 2: when something breaks, and I know what.
Speaker 3: My fixed expenses are, and that's something I didn't really
Speaker 3: understand when I had a house. You have to amortize
Speaker 3: a roof repair that goes every ten years, that's twenty grand.
Speaker 3: Your boiler lasts seventy eight years. You shouldnencounter that into
Speaker 3: your monthly expensures.
Speaker 2: He says his experience over the last three years has
Speaker 2: really changed his thinking on the American approach to housing,
Speaker 2: where for many people their biggest investment is real estate.
Speaker 3: When everyone's net worth is tied up in their house,
Speaker 3: they're going to do everything they can to make sure
Speaker 3: their house doesn't go down in value. And how you
Speaker 3: do that is you create scarcity, which means you don't
Speaker 3: allow other houses to be built, so you can't have
Speaker 3: everyone's net Worth tied up in their house. That doesn't
Speaker 3: make sense, And I don't think we ever thought about
Speaker 3: it because it was just kind of working. But like now,
Speaker 3: it doesn't work, so we should rethink that whole paradigm.
Speaker 2: Thanks for listening to The Big Take DC podcast from
Speaker 2: Bloomberg News. I'm Salaia Mosen. This episode was produced by
Speaker 2: Julia Press. It was mixed by Blake Maples and Crayton
Speaker 2: Newman and fact checked by Audriana Tapia. It was edited
Speaker 2: by Aaron Edwards, Stacy Vanicksmith, Matt Bosler, and Wendy Benjaminson,
Speaker 2: who provides editorial direction. With Elizabeth Ponso. Naomi Shaven and
Speaker 2: Kim Gettelson are our senior producers. Nicole Beamster Bower is
Speaker 2: our executive producer, and Stage Bauman is Bloomberg's Head of Podcasts.
Speaker 2: Special thanks to Jennifer Epstein and Paulina Carcerro. Please follow
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