September 23, 2021

Homeownership is becoming harder for US renters | Business and Economy News

Home prices are surging in the US and consumers are paying more for finished goods and services – which spells rising inequality in the world’s largest economy.

Median home prices in the United States are surging, squeezing out for first-time buyers, while low-income Americans are losing a bigger slice of their household budgets to rising prices. That’s what the latest batch of data is revealing about widening inequality in the world’s largest economy.

The median sale price of a single-family home in the three months ending June reached a record high of $357,000, the National Association of Realtors (NAR) said on Thursday. That is nearly 23 percent higher than the same period a year ago.

The housing market continues to be a hotbed of economic activity this year, as aspiring buyers looking to take advantage of historically low mortgage rates find themselves in a tight market where few homes on offer leave sellers calling the shots.

While that helps home sellers build their wealth, it is decidedly not good for renters trying to get a foot on the housing ladder and who increasingly find themselves priced out of the market.

Among first-time buyers, the mortgage payment on a loan requiring a 10 percent downpayment ate up 25 percent of their income in the second quarter, compared to just over 21 percent a year ago.

“Housing affordability for first-time buyers is weakening,” said NAR chief economist Lawrence Yun. “Unfortunately, the benefits of historically low interest rates are overwhelmed by home prices rising too fast, thereby requiring a higher income in order to become a homeowner.”

The housing market has been running hot for over year, thanks to the US Federal Reserve keeping interest rates near zero while the economy – especially the jobs market- recovers from last year’s COVID-19 disruptions.

A separate report by the US Department of Labor (DOL) released on Thursday showed new claims filed with states for unemployment benefits continued to trend downward last week to 375,000. That is the fourth straight week that initial jobless claims – a proxy for layoffs – fell. But it is still above the pre-pandemic average of around 220,000.

While low interest rates help heal the labour market, they can also fuel inequality by swelling the price of assets such as houses and stocks.

Low borrowing costs are also no good for reining in inflation – which continues to rise as businesses gear up operations en masse, triggering bottlenecks for raw materials and labour.

Another report released by the Department of Labor on Thursday showed prices that firms fetch for finished goods rose 1 percent in July from the previous month.

Compared to a year ago, producer prices jumped 7.8 percent last month – the highest on record dating back to 2010.

Nearly three-quarters of July’s increase in producer prices was driven by demand for services as coronavirus vaccination rates climb, COVID-19 restrictions are rolled back and consumers rediscover their passion for spending.

The bigger-than-expected jump in the producer price index indicates that as companies pay more for raw materials and labour, those increases are being passed on to consumers.

Strip out food and energy, which tend to be volatile, and the core producer price index jumped 1 percent from a month earlier, and 6.2 percent from a year ago.

But the pain of higher prices is not felt equally. Low-income households are in a worse position to absorb price increases – especially for essential purchases like food and energy that can’t be delayed   – because it eats up a larger share of their income.

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