Why Home Prices And Mortgage Interest Rates Are Rising
RACHEL MARTIN, HOST:
Mortgage rates have been creeping up. The average 30-year, fixed-rate mortgage is now more than 4.5 percent. Home prices are also rising. And the combination is putting home ownership out of reach for many Americans. We're joined now by David Wessel. He's director of the Hutchins Center at the Brookings Institution, and a contributor to The Wall Street Journal and, of course, a frequent guest on this very program.
DAVID WESSEL: Good morning.
MARTIN: So this is bad news for a lot of people hoping to get their piece of the American dream. What's happening?
WESSEL: Well, basically, home prices are climbing above the levels they were before the housing bubble burst back around 2006. Now, that's good news for people who own houses. Nearly two-thirds of Americans own houses. There are fewer people, for instance, who have mortgages that are bigger than the value of their house. But there are some big differences, and one striking one is looking at young people. If you look at people under 45, the share of them that own houses has fallen quite a bit. In fact, the share of the nation's housing wealth - the whole housing pie held by people under 45 - has fallen from 24 percent in 2006 to only 14 percent today. And that has consequences. Americans who were born in the 1980s really are at a substantial risk of accumulating less wealth over their lifespans than previous generations because housing is the way a lot of people save.
MARTIN: Right. So why not? Do they just not see it as having the same cachet as it used to - owning a home? Why aren't they buying?
WESSEL: No, it's not that. The surveys show us that young people still see housing as a good investment. At least, that's what they tell pollsters. We know that some of them are having trouble getting decent jobs, getting on the career ladder. There is evidence that heavy student loan burdens are associated with people having trouble getting a mortgage and taking a house.
WESSEL: But there's also something going on on the supply side. Home building has not recovered from the Great Recession. And to the extent that builders are building, they tend to prefer building high-end houses because they make more money there, not the starter homes that increase the supply of houses that are affordable.
MARTIN: Wow. So what about people's ability to just get a loan? The crash was blamed, in part, on lending terms that were way too lax, right? But then I thought lending practices tightened up after the crash.
WESSEL: They did. And that's part of what's going on here. I think some people worry because you see a chart of housing prices going up, and you say, oh, there's another bubble blowing here. And that's not the case. Lenders are, as you say, still pickier than they used to be. You have to have a better credit score to get a mortgage today than you did, say, 15 years ago. People - there is more mortgages debt out there, and many people are taking on bigger mortgages relative to their income than they used to because houses are more expensive. But it's not yet at the kind of worrisome levels. And then the other thing that's interesting is that Americans as a group have a lot more equity in their home than they did five years ago, but people aren't using their houses as ATMs with home equity loans and stuff as they did in the bad old days.
WESSEL: And then there's simply a supply-and-demand thing going on here. Housing - building is not keeping up with growth of population in many hot markets. So that's not a bubble. That's, like, the fundamentals of supply and demand.
MARTIN: Right. And we are hearing about these places where housing is notoriously so expensive now, right? Like, in Seattle, they just passed this tax. The city council passed this tax on companies to try to get more money to provide affordable housing. Do you see that kind of thing happening in other places?
WESSEL: I do. I do think that there's a building political pressure here. In California, for instance, there's a ballot initiative that would make it easier for cities and towns to have rent control. And so I think we're going to see more of that, and politicians will respond.
MARTIN: David Wessel, director of the Hutchins Center at the Brookings Institution. Thanks so much, David.
WESSEL: You're welcome.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.