In the run-up to the 2020 presidential election, there are a number of issues being discussed. Everything from the economy, health care, immigration, national security and many others frequently take center stage on the campaign trail for the numerous Democratic candidates and President Donald Trump alike.
But there’s one major issue that isn’t discussed enough: housing.
And that’s a big problem.
Housing accounts for roughly one-sixth of the nation’s total gross domestic product, making housing one of the most important segments of the entire U.S. economy.
But you wouldn’t know it by listening to the candidates on the campaign trail. The talk mainly focuses on the “sexier” issues like those mentioned earlier.
Case in point: Housing got nary a mention during Trump’s 2020 State of the Union address, nor in the Democratic response.
Why is that? It’s complicated.
On the whole, housing has been stable and relatively boring since the housing crisis. Not for those who live it every day, of course, but for the public at large. Housing is no longer front and center as one of the main causes of an economic meltdown, and in the grand scheme of things, that’s a good thing.
But that doesn’t mean that housing isn’t important. Nor is it perfect as is.
The issues facing housing
Housing in this country has real issues that need to be addressed. First and foremost, there are simply not enough houses on the market to sustain what would be considered a healthy housing market.
A recent report from realtor.com showed that there are now fewer homes for sale than there have been in two years. That’s a big problem.
Housing is in a full-blown inventory crisis, and as CJ Patrick Company Founder Rick Sharga noted in December, there a number of causes, including a lack of construction and a dearth of existing homes on the market.
As Sharga said, new home sales only account for 10-20% of all sales, while the other 80-90% of sales are existing homes. And these days, homeowners are staying in the homes longer, meaning there are fewer homes coming onto the market.
“In fact, the average length of time a homeowner has stayed in the same home has more than doubled over the past 20 years – from a little under 5 years in 2000 to almost 12 years in 2019, according to findings from DataTree,” Sharga wrote.
Beyond that, a significant number of homeowners are also likely marrying themselves to their interest rate, either by buying a home in the last year when interest rates reached three-year lows or by refinancing their existing mortgage into a much lower rate than they had before.
Complicating things even further is the fact that home prices have continued to rise while wages have not kept pace, making it harder for many people to afford the house they’d want, if it ever hits the market at all.
And while a recent report from Black Knight shows that housing affordability is actually at a two-year high right now, housing is still not as affordable as it historically has been.
Think about this example: Let’s say a family bought a house four years ago for $400,000 with an interest rate of 4.5%. They refinanced last year and dropped their interest rate by 75 basis points to 3.75%. Even if they wanted to move, a similar house to the one they bought four years ago could now cost as much as $500,000.
So, do they move into a more expensive house that’s basically the same thing they have now? Or do they stay and make it work in their existing house? And what happens if interest rates actually rise? They’re certainly not going to sell their home and lose their sub-4% interest rate. Especially not for a more expensive house.
Combine those factors with a number of other ones, highlighted by HousingWire’s own Brena Nath here, and you have a housing ecosystem that looks very much like a duck on a pond: calm on the surface, but flailing wildly underneath.
So, how do we fix it? For starters, it would be nice to see it discussed in the election cycle this year.