Atlanta Fed President Warns: Housing Is Unaffordable And Regulation Driving Up Housing Prices

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Atlanta Fed President Raphael Bostic highlights that a median-income household now spends 41% of its earnings on owning a median-priced home – well above the 30% affordability threshold.

Additionally, he notes that in the Atlanta Fed’s district, nearly half of all renters struggle to meet rent payments, putting them at risk of eviction.

Speaking at Tulane University in New Orleans he highlighted specific focus areas.

Housing as Part of Economic Inclusion

True economic inclusion hinges on income security and wealth-building opportunities, with housing playing a pivotal role in both. It is crucial for economic mobility and resilience, as for most, it represents the largest component of their financial portfolio.

Homeowners often leverage housing equity to manage financial uncertainties, such as job loss. However, housing today, both as a necessity and an investment, is failing too many across various regions—from bustling Sunbelt cities to the major urban centers on the coasts and the Midwest, as well as smaller towns and rural areas, making it unaffordable for many.

Home Ownership Affordability Monitor

Across the U.S., a household earning the median income of approximately $75,000 annually needs to allocate 41% of it to afford a median-priced home costing around $359,000—well above the 30% threshold that defines housing affordability.

In Atlanta, while slightly more manageable, the situation remains challenging; a median-income household spends 38% of its earnings on a median-priced home.

However, the Miami-Fort Lauderdale-West Palm Beach area presents the steepest challenge within our District, where buying a median-priced home consumes 54% of a median household’s income.

Rents Are Also High

Renting is no less challenging when it comes to affordability within the Sixth Federal Reserve District, which includes Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee.

The Rental Affordability Tracker shows a significant proportion of renters in distress, with between 42 percent in Alabama and 54 percent in Florida considered cost-burdened.

Essentially, around half of all renters in our southeastern district find themselves financially strained by housing costs.

When renters fail to meet their rental payments, they face the risk of eviction. Additionally, affordability issues are not limited to urban areas; they also persist in rural locations.

Zoning and Permitting Increasing Housing Costs

Researchers for the Wharton Residential Land Use Regulatory Index discovered that land-use regulations have grown increasingly strict in many areas. The Atlanta Fed researchers further found a strong correlation between the stringency of these regulations and housing unaffordability. This suggests that more restrictive regulatory environments tend to drive up housing costs.

No Solutions Offered

Bostic admitted while reading from prepared comments that he had raised more questions than answers and the general scarcity of housing did not have easy solutions.

Redfin Confirms Affordability Crisis

A report from Redfin last month confirmed the numbers presented by the Atlanta Fed President.

Buyers now need nearly double the 2020 income to afford the average starter home, thanks to soaring prices and mortgage rates.

To afford the average starter home, homebuyers now need an annual income of $75,849, marking an 8.2% increase ($5,767) from last year.

As of Feb 2024, Redfin reports the prices needed for the median starter homes are

– San Jose, CA ($319,000)

– St. Louis, MO ($37,000)

– New Brunswick, NJ ($126,000)

– Miami, FL ($104,000)

– Montgomery County, PA ($99,000)

Higher Interest Rates

The Redfin report mentions higher interest rates as one of the reasons for the affordability crisis. The 30-year mortgage rates hovering around 7.96% result in a larger share of the monthly mortgage payments going to interest costs.

With the worst inflation in nearly 40 years, the Fed had no choice but to raise interest rates causing mortgage rates to spike higher.

Zillow Highlights Worsening Affordability

Today, aspiring homeowners face a daunting financial reality: earning over $106,000 is now a prerequisite for affording a home comfortably—an 80% increase from January 2020.

Median income has risen only 23% in the same time frame putting the dream of homeownership out of reach for many Americans as per the latest report from Zillow.

Only 3 Affordable Major Metro Areas Says Zillow

In terms of affordability, Pittsburgh, St. Louis and Detroit are the only major metro areas within reach for those earning less.

The list of affordable cities (with the income needed to afford homes) is

– Pittsburgh ($58,232)

– Memphis ($69,976)

– Cleveland ($70,810)

– New Orleans ($74,048)

– Birmingham ($74,338)

Lingering Inflation and the Fed’s Rate Challenge

Despite Raphael Bostic’s focus on housing affordability, a critical underlying issue remains unaddressed: persistent high inflation, preventing the Federal Reserve from reducing interest rates. This situation places enormous pressure on many Americans, exacerbating the housing affordability crisis. This monetary policy dilemma underscores the complexities of balancing economic stability with affordability, signaling tough times ahead if inflation does not ease. The longer high inflation persists, the more entrenched these challenges become, threatening the economic well-being of countless households.

The original article was published on Financial Freedom Countdown and has been syndicated.