Many of my blogs during the past year have the lamented the impact of the combination of high home prices and interest rates on potential buyers. To place home ownership in perspective, just under 66% of Americans own their own home and the value of that home constitutes about 70% of net worth on average. So, home ownership has been a key element in upward mobility.
Well, here are two new datapoints that place the issue in perspective. First, Zillow reports that the price of a starter home exceeds $1 million in 237 cities in the U.S. A starter home is defined as having a price in the lower one-third of residential values in the region. About one half of these cities are located in California, but $1 million starter homes are also common in many Northeast states as well as in Florida, Texas, and Hawaii. During the past five years, the price of the average starter home has increased by 54% nationally.
Second, a recent CNN poll found that 85% of renters say they would like to own a home but cannot afford it. As shown below, 54% of renters believe it unlikely they will ever be able to afford one.
It now seems likely that the Federal Reserve will cut interest rates soon which could improve affordability. On the other hand, lower rates might stimulate a buying surge that would only push prices higher. In any case, the longer term solution is to dramatically increase the supply which will require major changes in local zoning laws.