U.S. Housing is in Crisis
Shelter is a basic human need, yet it’s a need that’s getting harder and harder to manage. Nationally, U.S. home prices increased by nearly 19% last year, while rents rose a record 11.3%. Both continue to climb despite recent increases in mortgage rates.
Housing is considered affordable when its cost – whether rent or mortgage – is less than 30% of one’s gross pay, including utilities. For many, that standard is becoming impossible.
It’s an issue that impacts all of us, even if we already own a home or have affordable rent. “Families that have stable housing have better health-related outcomes, their children do better in school and their neighborhoods have a cornerstone necessary to thrive,” said Susan Thomas, senior vice president and president of Fifth Third Community Development Corp., the Bank’s real estate investment arm that helps finance the construction of new, affordable housing in our footprint. “Thriving businesses need thriving employees, and affordable housing is key.”
Not enough housing to go around
It’s basic supply and demand: More people want homes than there are houses. Since the end of the Great Recession in 2009, fewer homes – single family or multifamily – have been built in the United States than at any period since the 1960s.
Many builders went out of business during the Great Recession. Those that survived are now facing challenges of higher-priced materials that are taking longer to arrive. This has resulted in new homes becoming more costly and taking longer to construct. “While the demand is still outstripping supply, the impact of rising mortgage rates is uncertain, so we’re starting to see builders slow down their new construction,” said Nikki Bialka, vice president and Community Reinvestment Act development manager for Mortgage.
However, only about 25% of affordable housing is new construction. The other 75% is existing housing. In some hot markets, though, including major metropolitan areas such as Miami and Chicago, even existing units are increasingly becoming less affordable. In addition, investors have snatched up homes and converted them to rental properties, which decreases housing stock further.
While May saw a 17% decline in investor purchases as the profit margin for rentals narrowed, it’s too early to know if the trend will stick.
Fortunately, many local governments are recognizing the need for more affordable housing. “Nationally, there’s been significant action regarding affordable housing at the local level,” Susan said. “That may be offering a financing program or removing barriers to construction such as easing the permit process or revising a zoning code.”
Housing is growing faster than income
There’s another reality to the housing crisis that’s often not mentioned: Incomes are not keeping pace with rising housing costs. While home prices and rents, respectively, have risen 19% and 11% in the past year, personal income has risen only 3.1%.
“You have to have income to pay rent or a mortgage,” Susan said. “There are people paying half or more of their income on housing alone. This disparity is a long-term, systemic issue in our society.”
Higher rents also make it difficult to save for a down payment.
American dream still possible, with some help from Fifth Third
There is hope for our customers – and employees – who wish to be homeowners. The Bank has increased its efforts to make homeownership affordable by removing some of the barriers that make it difficult to afford the upfront costs of a home. For example:
- We recently announced that we will pay $1,000 toward closing costs for VA, FHA, 203(k) and USDA Owner Occupied Purchase and refinance loans. This will lower the amount of cash needed for close and can be combined with other down payment assistance programs. This program is available until Nov. 15, 2022 across Fifth Third’s footprint.
- In the nine neighborhoods that make up our Fifth Third Empowering Black Futures Neighborhood Program and the G7 neighborhood in Detroit, we are waiving our lender closing costs for anyone that purchases a home within certain census tracts in those neighborhoods. That can save buyers up to $1,100.
- We continue to offer our down payment assistance program, which can provide up to $3,600 in savings. Since 2016, we have provided $20.5 million in down payment and closing costs assistance.
- Bank employees can benefit from our Employee Mortgage Benefit Program, which offers discounts in fees and pricing.
Further, Nikki said, “Most people don’t realize you can benefit from multiple down payment-assistance programs simultaneously.”
Helping customers understand the options and resources available to them is part of the solution. The homebuying process can be intimidating, even scary. “Educating potential buyers on the homebuying process and how to navigate today’s market is critical to helping people believe home ownership is possible for all,” Nikki said. “We’re fortunate to have mortgage loan originators that are passionate about helping customers along their path to homeownership.”
While there’s no single answer to ease the nation’s affordable housing crisis, we’re committed to being part of the solution. Helping individuals and families achieve their financial dreams – like owning a home – builds stronger communities, and that’s good for all of us.