Navigating the Elusive American Dream
Do you know someone who has submitted 5, 10, or maybe even 15 offers on different properties without being able to purchase a house? The American dream is often associated with owning a house, having a couple of kids, and watching them play in the front yard – a vision many of us cherish. But are we being priced out of the American dream? I’m Marcie Billen, a real estate agent in Oklahoma City, part of the Oklahoma City metro area.
The Volatile Landscape: Interest Rates and Inflation
The news, whether you read it or watch it, has been rife with stories of climbing interest rates and uncontrollable inflation. The media thrives on drama, and we all recognize that. However, is there any truth to these claims? Can we genuinely say that the American dream is on the brink of extinction? While my opinion might not carry much weight for you, let’s engage in a discussion about it.
Interest Rates: A Crucial Indicator of Affordability
Interest rates serve as the primary gauge of affordability in any housing market, not confined to Oklahoma alone. If we compare interest rates at 3.1 percent in December 2021 to the current rates at the end of April 2022, which have exceeded 5%, what implications does this hold for your purchasing power? While it might not significantly impact the down payment, the interest rate plays a pivotal role in shaping your monthly payment. For instance, if you closed on a house in December at a 3.1% interest rate with a 10% down payment along with private mortgage insurance, your estimated monthly payment would be $1,541 (calculated roughly using a calculator). Although this is an approximation, it helps illustrate the point.
Impact on Monthly Payments: The Changing Landscape
Now, shifting our focus to late April 2022, when interest rates have surpassed 5%, if you had secured a loan at that point, your monthly payment for a $300,000 property with a 10% down payment would exceed $1,886, inclusive of private mortgage insurance. As highlighted in a CoreLogic article, the Federal Reserve has been increasing interest rates to rein in the surging house prices in the market. However, the question that arises is: who bears the brunt of these changes? What led to this swift surge in rates? The Fed’s decision to raise interest rates also stems from its efforts to combat inflation.
First-Time Homebuyers: Feeling the Impact
While experts correlate interest rates and inflation – a correlation I’m not entirely convinced by – the rates we witnessed last year in the range of 2% to 3% were unsustainable. Although these rates favored homebuyers, they weren’t tenable for our economy or the banks that facilitated them. The low-interest rates contributed to an upward spiral in home prices, and this trend persists due to the high demand and a substantial pool of prospective buyers. Market adjustments take time when the economy undergoes changes.
The Generation Affected: Millennials and Affordability
So, is this fair? Who bears the brunt of these interest rates? First-time homebuyers are disproportionately affected by these soaring interest rates, which often hover in the mid-to-low fives, depending on the circumstances and the type of loan sought. It’s worth noting that the majority of first-time homebuyers today are millennials. Unlike previous generations, millennials typically start families around the age of 32, delaying the process. With additional financial burdens like student loan debt, millennials are grappling with unique challenges. Being the largest generation since the baby boomers, millennials constitute a significant demographic, and the impact of these interest rates on them is substantial.
Corporate Influence: Challenges and Advocacy
As a realtor in Oklahoma in early 2022, I observed that bidding wars were becoming increasingly common, with some buyers wielding substantial amounts of cash. These buyers either purchased properties entirely in cash or offered sizable down payments on loans. Additionally, some buyers were capable of bridging appraisal gaps by paying above the appraised value. Having such substantial funds on hand, whether as young families or individuals, poses challenges, especially for those in their early 30s. Many fingers point to inflation as the cause of the ongoing affordability housing crisis. Corporations are also seeking ways to tackle inflation, with real estate investments being a prominent choice.
Corporate Influence and Advocacy: The Struggle for Balance
You might have come across the 60 Minutes special that aired in March 2022, featuring interviews with a corporate representative heavily involved in purchasing homes, alongside first-time homebuyers and real estate professionals. While these trends aren’t universal, many corporations are outbidding owner-occupant homebuyers, offering large cash sums to acquire properties without relying on loans, which means the interest rates don’t have the same negative impact on them. In fact, this benefits the corporations by bullying residential buyers out of the market. This approach appeals to sellers, and afterward, these corporations often rent out the houses to the same individuals who initially intended to purchase them. Consequently, the number of renters in the market has surged.
The Fight for Community Integrity: Advocating for Change
In Oklahoma, there’s a growing movement against such practices, with advocates condemning out-of-state investors’ influence on rental and home prices. One such advocate is Mickey Dollins, a state representative in Oklahoma. Dollins argues that out-of-state investors are driving up rental and housing prices, negatively impacting local communities. Although Dollins has yet to unveil a comprehensive platform to address this issue, he has criticized the Oklahoma State Department of Tourism for its efforts to attract individuals from the West Coast to Oklahoma. While welcoming newcomers, the influx of large corporations purchasing properties and diverting profits from the state remains a concern.
Crafting Solutions: Strategies for Change
To combat this issue, a multi-pronged strategy is necessary. Efforts to limit out-of-state corporate investments include revising tax structures and modifying homeowners’ association regulations. Local and state-level interventions are crucial in curbing these practices. The aim is to disincentivize corporations from engaging in these activities, thereby safeguarding the interests of local communities and residents.
Looking Ahead: Your Perspective Matters
Another noteworthy proposal involves taxing owners of single-family homes that remain vacant for extended periods, such as six months or a year. This approach would also target large banks that leave foreclosed properties idle for prolonged durations. These proposals align with the goal of ensuring that homes remain in the hands of individuals invested in their communities, promoting stability and local economic growth.
Share Your Thoughts: Engage in the Discussion
Your insights matter: What do you believe needs to be done at the state level to mitigate the influence of out-of-state corporate investors and preserve our local real estate market’s integrity? Share your thoughts in the comments below.
Need to get in touch?
