The U.S. government stepped up to the plate when COVID-19 shut down the economy and left the majority of citizens wondering how they were going to make ends meet. For those who are earning less because they are staying home, and for the many who lost their jobs completely, there was a tremendous amount of financial uncertainty.
This created an enormous amount of stress on the housing market, as people were suddenly unable to pay their rent, mortgage, or other living expenses. In hopes of averting a major housing crisis, the United States government implemented a number of policies to address some of the most apparent issues. Now, just over one year later, many of these policies are still intact. The question remains: Has it helped or hindered the real estate market?
Aside from the trillions of dollars in federal relief that have been provided to people across the country, one of the first things Congress decided on was a moratorium on both evictions and foreclosures. This put an immediate freeze on nonpayment actions that banks and landlords could take so that, in theory, if the homeowner or tenant could not make payments due to COVID-related unemployment or illness, they would still have housing.
The Federal Reserve also lowered interest rates to historic lows in an effort to increase the affordability of homes and keep people spending.
At first glance, it appears that many of these measures were helpful, but upon deeper inspection, it is likely just perpetuating an already serious crisis of affordable housing. Low interest rates backed by a lack of housing inventory have driven home prices and rent prices through the roof.
And property taxes, insurance costs, and inflation have risen with it, affecting both homeowners and renters. None of this is helpful in making housing affordable -- the ultimate goal.
Adding fuel to the fire of the current housing crisis
Home prices have risen just over 14% over the past year, according to the Case-Shiller Home Price Index, and new-home sales prices have increased by 20% year over year. This rapidly appreciating market is not just affecting homebuyers; renters are feeling the pinch too. Rent usually increases between 3% and 5% per year, but in the past year, this rate has more than doubled to over 9%.
If it were simply inflation across the board, wages would -- or should -- be increasing as well, but they aren't. The Economic Policy Institute reports a real wage growth of just 3.9% for private employees. This means there's a severe housing cost burden in most areas of the country wherein people are paying more than 30% of their total income for housing, with many metropolitan areas seeing 20% or more of their households under this stress.
The Millionacres bottom line
As sincere as the intentions may have been when creating these policies, it seems that a different approach will be necessary to actually make housing more affordable. Perhaps a policy that allows more freedom for the market to self-regulate -- especially now that the pandemic seems to be normalizing in whatever way it can, and people can go back to work -- would be better.
Moratoriums are supposed to end on July 31st, and the Federal Reserve has mentioned that rates will likely rise soon. Only time will tell whether the government is ready to let the real estate market rebalance itself or extend the counterproductive policies that have been put in place.