Looking for an affordable home? Wait 5 years, one investment advisor says
“Homes will be affordable again—just not anytime soon,” according to Conor Sen, a registered investment advisor and founder of Peachtree Creek Investments.
In a recent Bloomberg column, Sen said restoring housing affordability will be a “slow grind” that will take at least five years for the majority of Americans.
This is how long it will take for wages to rise, mortgage rates to fall, and home prices to moderate.
According to Sen's analysis based on the National Association of Realtors’ affordability index, housing affordability in June 2018 is the most realistic benchmark to strive for.
The irony is that June 2018 was the most unaffordable month of the 2010s.
Still, affordability conditions that month were similar to those between the mid-1990s and early 2000s, or just before the bursting of the housing bubble in 2008.
In June 2018, the average existing home was worth $274,000, typical mortgage rates were roughly 4.5%, and full-time workers were paying an average of 30.7% of their monthly income toward their home.
Fast forward to today, the typical American would spend a whopping 43.2% of their monthly income to afford the same home, effectively rendering them "house poor."
While going back to June 2018 may seem like a fantasy, Sen indicated that policymakers are trying to restore housing affordability through various programs.
Whether their plans could succeed is subject to great controversy.
Help on the way?
Vice President Kamala Harris has made housing affordability a key part of her presidential campaign.
One of her proposed policies is up to $25,000 in down payment assistance for first-time buyers who’ve paid their rent on time for at least two years.
The Harris proposal also calls for increasing the housing supply by 3 million units during her first presidential term, which would further ease affordability constraints.
While Sen generally supported the ideas put forward, he said the plan was unrealistic. For starters, Harris’ Democrats would probably need to control both houses of Congress to pass the legislation—an unlikely scenario..
Secondly, “building an additional 750,000 homes per year on top of the current pace of construction isn’t feasible given supply chain, labor and other logistical challenges,” Sen wrote.
“Building even half that over four years would be an achievement,” he explained.
However, not everyone is convinced that down payment assistance is the best remedy for the affordability crisis.
According to University of Mississippi finance professor Ken Johnson, giving buyers extra cash would be like “throwing gasoline on an already on-fire housing market.”
Industry groups like the National Association of Home Builders believe small and independent developers need better incentives to build. Currently, Harris’ plan doesn’t clearly define those incentives.
According to Arrive Home president Tai Christensen, down payment assistance could make housing inflation worse if it’s not accompanied by an increase in supply.