Housing affordability key issue in the November 2024 elections

by Zain Jaffer

In February 2024, Redfin commissioned a survey through research firm Qualtrics with a sample of around 3,000 U.S. homeowners and renters [https://www.redfin.com/news/gen-z-housing-affordability-important-vote/]. The Redfin study says that 91% of Gen Z adults consider housing affordability as their top issue in the upcoming November 2024 US Presidential elections, with the strength of the overall economy as the second issue.

Millennials, Gen Xers, and Boomers gave the strength of the economy as their top issue. Millennials gave education, and Gen Xers and Boomers gave preserving democracy as their second issues respectively. Social issues like gun rights, abortion, foreign wars, illegal immigration, and even student debt ranked lower on their list of issues.

It probably should not come as a surprise that Gen Z adults rank housing affordability on top of their issue list. Not being comfortable with where you live, as well as the American measure of success, that of owning your own house, is becoming harder and harder to achieve.

According to the Federal Reserve Data [FRED] data on historical rates of the thirty year mortgages [https://fred.stlouisfed.org/series/MORTGAGE30US], in April 2002, the rate average was at around seven percent, where it is today. That is twenty two years, or two decades, since home buyers last saw the current seven percent mortgage rate, although it hovered in the six percent range after 2002 until the subprime mortgage crisis of 2008. After that the Government wanted to stimulate lending so that the banks could again recover from the crash, and so rates have been kept artificially low until the Fed started hiking rates to cool off inflation.

In Q2’2008 the median price of a US home was around $235,300 according to the FRED database [https://fred.stlouisfed.org/series/MSPUS]. In Q2’2020 it was $317,100. In Q2’2024 the median price of a home in Q4’2023 was $423,200. So Gen Z is effectively buying a current home that costs almost double from 2008, at higher mortgage rates..

Boomers, Gen Xers, and Millennials are happy of course that their net worth, through the value of their homes has risen up. Not so with Gen Z who have to buy their own homes at a more expensive price, at higher rates.

Another reason homes are so expensive is not just the more expensive mortgage. It is also due to a shortage of housing in many key areas. Although real estate supply and demand varies from place to place, and also depends on the type of housing.

The pause in construction due to the pandemic, as well as delays in legal permits all contribute to this shortage. Another reason is that potential sellers, who may have their own reasons to move to another home, realize that if they sell they will again have to sign up for the current high mortgage rates to upsize to their new home. So many home sellers prefer to “lock-in” to their current rates that are in the three percent range especially if they got their thirty year mortgages between 2020 and early 2022 [https://www.investopedia.com/the-lock-in-effect-8414620].

Another factor is that the Work from Home (WfH) lifestyle encouraged many people to move to family friendly areas, though to some extent that is also counteracted by job losses that result in less people able to consider buying homes. Inflation also makes the basic prices of food, clothing, rent, utilities more expensive such that those with lower incomes may need to forego their plans to buy a home because they do not have enough for the equity and the payments.

The rate in hikes is being done globally and is not specific just to the US. Most central banks like the Fed have a mandate to act independently of their politicians, and raise interest rates mostly to dampen inflation, or lower rates to encourage more activity in the economy.

However given that housing affordability is shaping up to be a key electoral issue especially among young voters, it is likely that there will be pressure on the Fed to lower rates just before November 2024.

Definitely this is a problem that needs to be resolved as owning a home is a large part of the American dream that is being denied to Gen Z. There is no question why this issue is so important to them.