For the first time since at least the 1990s, it is more expensive to buy a home versus renting.
For over a year now, the Federal Reserve has been raising interest rates in an effort to combat post-COVID inflation. As of today, the Federal Funds rate sits somewhere around 5.5 percent, and mortgage rates are over 8 percent and climbing. This jump in interest rates has, for the first time since at least the mid-1990s, pushed the cost of buying a home well above the cost of renting. According to data from the Wall Street Journal, it is now 52% more expensive to buy a home versus renting.
A sudden decrease in housing prices is unlikely, barring another harsh recession. Most mortgages in the United States are from just before the interest rate spike, meaning that many homeowners are locked into cheaper rates that they will never find in the current market. Higher interest rates, though, don’t seem to benefit anyone: first-time buyers are priced out of the market, current homeowners are likely unable to realize the gains in their home value due to an inability to sell and find equally affordable housing, homeowners looking to move may be priced out of markets with new opportunities – this brings down not only local but national productivity as talent is unable to easily move to new markets, and an increase in the number of rentals nationally means that landlords cannot raise rents as high as they normally would.
Housing is a challenge like no other, and it is one being felt especially by county governments. Interest rates are not the only challenge, though; labor and material costs, pressure from short-term rentals, constraining state and local budgets, climate change, and policies crafted in response to competing priorities all overlap to make the crisis more challenging to address. The housing crisis did not spring up overnight, and it will take years of action over several areas of expertise to solve it.