Mortgage rates are at their highest levels in 22 years and house prices are at record highs. Hard-working Americans cannot get on the property ladder, and retirees are struggling to sell in order to downsize. The Biden administration has done little to help alleviate the problem. This Washington Examiner series, Home Economics, will investigate how we got here, the toll on individuals around the country, and the alternatives people are embracing to survive the market. Part one of this four-part series focuses on the risk the crisis poses to President Joe Biden’s reelection effort.
The price of everything is up since 2020, but in absolute terms nothing has gone up more than mortgages.
With the 2024 presidential contest coming into focus, housing affordability will be among the economic issues at play, one that hits close to home in the American self-conception as a land of individual opportunity and prosperity.
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GOP front-runner Donald Trump is sounding the alarm about threats to the American dream, penning an opinion piece that says things were better when he was in charge.
“When I was in office, the 30-year mortgage rate reached a record low of 2.65 percent — and the median-income American family could afford a mortgage,” Trump wrote in Newsweek. “Yet thanks to Biden’s disastrous economy, interest rates have skyrocketed, making home-ownership out of reach for too many Americans, especially young Americans who in previous generations would be looking to start a family.”
Mortgage rates remained low in the early months of the Joe Biden presidency, then began accelerating when the Federal Reserve raised interest rates to combat inflation. Mortgage rates have soared from around 3% at the start of last year to around 8% in recent weeks.
Each 1% rise in interest rates represents a payment increase of $5,000 annually on a $500,000 mortgage. Thus, a mortgage at that amount would cost $25,000 more each year now compared to early 2022.
Biden frequently talks up the economy, or “Bidenomics,” by pointing out strong GDP growth, low unemployment, strong manufacturing, and falling inflation rates since last summer. He has also focused on lowering consumer prices by battling “junk fees,” high gas prices, and especially student loan payments, yet speaks much less frequently on mortgage rates.
Democratic strategist Brad Bannon says that could be a mistake.
“Mortgage rates are part of the bigger problem of inflation, and right now inflation is the biggest obstacle that Joe Biden has to overcome to get reelected,” Bannon said. “So yeah, I think he should talk about it more.”
The problem particularly affects younger voters, a traditional Democratic base, because they are the subset looking to buy their first homes in order to build wealth and set the stage for raising a family. The sharp climb in rates has made existing homeowners reluctant to sell, which has the effect of keeping prices high for the few homes on the market.
Some of Biden’s focus on consumer fees and student loans may reflect his constituency. Republicans are historically much more likely to own homes than Democrats, whereas Democrats are more likely to hold student debt.
Still, homeownership falling out of reach for younger voters reflects the wider conundrum Biden faces on the economy. His economic approval rating is a dismal 38.4%, according to the RealClearPolitics average, compared to 59% who disapprove. That fact has some Democrats worried the “Bidenomics” push could backfire despite the strong-on-paper economy.
Trump is working to capitalize on the anxiety, saying that historically high numbers of young people are delaying marriage and children in contrast to the thriving late-2010s economy under his watch. But industry insiders have said much the same thing.
“We are seeing people hold off — they might be looking, oops the rates went up one more time, and they’re like, ‘I’m out,’” Minneapolis-based real estate broker Patty Zuzek told the Washington Examiner’s Zachary Halaschak.
Republicans more generally blame Biden for inflation thanks to big spending, such as the $1.9 trillion American Rescue Plan stimulus bill that passed Congress with no Republican votes in March 2021.
Unfortunately for Biden, the housing market may be one of the last sectors to recover even if inflation returns to the Fed’s 2% target. The agency would need to lower interest rates through a series of meetings, and the banking industry would then react to that by lowering mortgage rates.
Higher interest rates also make it harder to build housing, creating a lagging effect on new construction that could remain even in a renewed low interest rate environment.
The issue extends north of the border, where Canadian conservatives are attacking Prime Minister Justin Trudeau over what they describe in Trumpian-sounding terms as “housing hell.”
In the U.S., housing affordability was the worst ever in records dating back to 1989, according to the National Association of Realtors.
Yet Biden White House officials have taken only the slightest of steps toward addressing housing affordability in the U.S., such as incentivizing local governments to ease zoning restrictions with grant money from the Department of Housing and Urban Development and the Department of Transportation.
The Biden campaign did not respond to a request for comment from the Washington Examiner.
Biden stresses that he won’t pressure the Fed to lower interest rates, though he has used executive powers to try to influence gas prices and student loan payments. In August 2022, Biden implemented a $400 billion student loan forgiveness plan that was later struck down by the Supreme Court, and he has drawn millions of barrels of oil from the Strategic Petroleum Reserve in order to combat high gas prices.
Mortgage rates are still not all that high by historical standards — they peaked at nearly 18% in the early 1980s — though the rate of increase in 2023 is without precedent this century.
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George Washington University real estate chairman Robert Van Order says he expects mortgage rates will be an issue in 2024, just not one that tops voter concerns.
“The market seems to think that it’s more likely that rates will go down than come up,” Van Order said. “Homeowners vote, and people who see high rates or high rates for their kids will react to it. But I don’t see it as being in the top five things I’d worry about.”