Biden’s 2024 campaign trail may be haunted by high housing costs
Mortgage Rates Soar, Housing Affordability Plummets: The Crisis Facing Americans
Mortgage rates have reached their highest levels in 22 years, while house prices have skyrocketed to record highs. This has left hard-working Americans struggling to enter the property market, and retirees finding it difficult to downsize. Unfortunately, the Biden administration has done little to address this pressing issue. In this captivating Washington Examiner series, Home Economics, we will delve into how we arrived at this point, the impact on individuals across the country, and the innovative solutions people are adopting to navigate the market. In the first installment of this four-part series, we will explore the risk this crisis poses to President Joe Biden’s chances of reelection.
The Price Surge: Mortgages Take the Lead
Since 2020, the cost of everything has risen, but nothing has experienced a more significant surge than mortgages. This has become a critical economic issue as the 2024 presidential race looms, hitting close to home for Americans who cherish the idea of individual opportunity and prosperity.
“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,” wrote GOP front-runner Donald Trump 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.”
Initially, mortgage rates remained low during the early months of President Biden’s tenure. However, they began to surge when the Federal Reserve raised interest rates to combat inflation. Over the past year, mortgage rates have soared from around 3% to approximately 8% in recent weeks.
Each 1% increase in interest rates translates to an additional $5,000 per year on a $500,000 mortgage. Consequently, compared to early 2022, a mortgage of that amount now costs an extra $25,000 annually.
The Political Implications for Biden
President Biden frequently highlights the strength of the economy, or “Bidenomics,” by emphasizing robust GDP growth, low unemployment rates, thriving manufacturing, and declining inflation rates since the previous summer. However, he rarely addresses the issue of mortgage rates.
“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,” said Democratic strategist Brad Bannon. “So yeah, I think he should talk about it more.”
This problem particularly affects younger voters, a traditional Democratic base, as they strive to purchase their first homes to build wealth and establish a foundation for starting a family. The sharp increase in rates has made existing homeowners hesitant to sell, resulting in high prices for the limited number of homes available on the market.
While Biden’s focus on consumer fees and student loans aligns with his constituency, it reflects the broader challenge he faces regarding homeownership becoming unattainable for younger voters. Despite the seemingly strong economy on paper, Biden’s economic approval rating stands at a dismal 38.4%, with 59% disapproving, according to the RealClearPolitics average. This has left some Democrats concerned that the “Bidenomics” agenda could backfire.
Former President Trump is capitalizing on this anxiety, claiming that a historically high number of young people are delaying marriage and children due to the struggling economy under Biden’s watch. Industry insiders echo similar sentiments.
“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,'” said Minneapolis-based real estate broker Patty Zuzek.
Republicans, in general, blame Biden for inflation, attributing it to excessive spending, such as the $1.9 trillion American Rescue Plan stimulus bill passed in March 2021 without any Republican votes.
The Road Ahead and Biden’s Response
Even if inflation returns to the Federal Reserve’s 2% target, the housing market may be one of the last sectors to recover. Lowering interest rates through a series of meetings would be necessary, followed by the banking industry adjusting mortgage rates accordingly. However, higher interest rates also hinder housing construction, leading to a lagging effect that could persist even in a renewed low-interest-rate environment.
Across the border, Canadian conservatives are criticizing Prime Minister Justin Trudeau for what they describe as “housing hell.”
In the United States, housing affordability has reached its worst level since records dating back to 1989, according to the National Association of Realtors. Despite this, the Biden administration has taken only minimal steps to address the issue, such as incentivizing local governments to ease zoning restrictions through grant money from the Department of Housing and Urban Development and the Department of Transportation.
As the housing crisis unfolds, the Biden campaign has remained silent, declining to comment on the matter.
While Biden has refrained from pressuring the Federal Reserve to lower interest rates, he has utilized executive powers to influence gas prices and student loan payments. In August 2022, Biden implemented a $400 billion student loan forgiveness plan, which was later struck down by the Supreme Court. Additionally, he tapped into the Strategic Petroleum Reserve to combat soaring gas prices.
Although mortgage rates are not historically high, with the early 1980s seeing rates peak at nearly 18%, the unprecedented rate of increase in 2023 raises concerns. However, George Washington University real estate chairman Robert Van Order believes that while mortgage rates will be an issue in 2024, it may not be a top priority for voters.
“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.”
As the housing crisis continues to unfold, its impact on Americans’ lives and the political landscape remains a critical issue that demands attention.
Click here to read more from the Washington Examiner.
Why is Canada facing a housing crisis?
The main cause of housing becoming unaffordable is that demand continues to remain much higher than supply. Meanwhile, supply isn’t rising with new construction or with resales as people are not listing. Homebuyers are facing similar challenges, with mortgage rates reaching record highs. However, the Canadian government has taken more proactive measures to address the issue, such as implementing stricter lending rules and introducing various housing affordability programs. This has allowed Canadian homebuyers to navigate the market more effectively and find affordable housing options.
In response to the crisis, President Biden has announced plans to invest in affordable housing and expand homeownership opportunities. The administration has proposed a $213 billion investment in housing, which includes funding for the construction and renovation of affordable housing units. Additionally, the administration aims to assist first-time homebuyers by providing down payment assistance and expanding access to mortgage credit.
Critics argue that these measures are not enough to address the magnitude of the crisis. They believe that the Biden administration should be taking bolder steps to address the root causes of the issue, such as addressing supply constraints and implementing policies that promote housing affordability.
The crisis facing Americans in the housing market is a pressing issue that requires immediate attention and effective solutions. As mortgage rates soar and housing affordability plummets, hard-working Americans are struggling to enter the property market and retirees are finding it difficult to downsize. The Biden administration must take decisive action to address this crisis and provide relief to those affected. By implementing innovative solutions and working towards housing affordability, the administration can alleviate the burden on Americans and pave the way for a brighter future.
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