Pandemic-fueled housing boom leaves hardest hit behind

The coronavirus recession is driving a wedge through the U.S. housing market, sparking concerns of worsening inequality.

Floor-low interest rates, the mass adoption of teleworking and a housing shortage have fueled a surge in home purchases and prices. The housing market is one of the few sectors of the economy that has completely recovered from the onset of the COVID-19 downturn and is expected to keep growing this year.

But while the housing boomlet has benefited homeowners, the recession has pushed many Americans further away from having the financial security to buy their first house.

Millions of Americans who have relied on federal foreclosure protections and forbearance plans to avoid homelessness during the pandemic now face deep financial holes to dig themselves out of before the economy fully recovers.

Those who have been evicted or are delinquent on other debts could find it even more difficult to get a mortgage as lenders tighten their credit standards. And soaring home prices may make homeownership unattainable even for those in seemingly good financial standing.

“As we enter 2021 and this aid lapses, there could be more households that fall into this category that could have negative impacts on their credit score, and that will undermine their ability to borrow in the future,” said Yelena Maleyev, an economist at the accounting firm Grant Thornton.

“There will need to be more support for these people,” Maleyev added.

President-elect Joe Biden has proposed several measures meant to expand the supply of affordable housing and help families purchase their first home, including a $100 billion affordable housing fund and a $15,000 tax credit meant to offset the costs of a down payment on a home.

Biden has also proposed a tax credit for those who build low-income housing as well as significantly increasing the enforcement and strength of housing discrimination laws.

Those proposals would require congressional approval for enactment.

While the early chaos of the pandemic threatened to derail the mortgage industry, the housing market has staged a remarkable comeback thanks in part to ample support from the Federal Reserve through interest rate cuts and steady purchases of mortgage-backed securities.

Banks and other mortgage lenders issued more than $3.5 trillion in home loans in 2020, the most total since 2003, according to projections from the Mortgage Bankers Association (MBA).

Roughly $1.4 trillion of the mortgages originated last year were for newly purchased homes, up 16 percent from 2019 and the highest level since 2005. The drastic decline in mortgage rates also drove a staggering 109 percent increase in home loan refinancing from 2019, according to MBA projections.

“As soon as states began reopening, purchase application volume just took off,” said Mike Fratantoni, chief economist at the MBA.

The housing boom also drove prices roughly 10 percent higher year over year, Fratantoni said. The median sale price of a home rose above $300,000 for the first time this past summer, according to the National Association of Realtors.

Home prices rose as quickly as they did in part because the supply of housing struggled to meet the intense demand for it, Fratantoni said. While buyers were eager to upgrade to a new residence amid the pandemic, sellers were wary of holding open houses that could raise their risk of infection. Homebuilders tempered their activity.

Though permits for new home construction accelerated toward the end of the year, experts say the housing shortage — which has persisted for years — will continue to pose challenges through 2021.

“The shortage of supply is probably the biggest constraint for first-time homebuyers,” Fratantoni said. “The prices are increasing faster than certainly wages are increasing right now.”

Economists consider gradual increases in home prices to be good for the economy, but a lack of affordable housing has long been an issue and could pose a major obstacle to Americans facing severe financial challenges.

More than 50 percent of households in a forbearance plan have little to no confidence that they will be able to resume monthly payments when they are no longer allowed to delay them, according to a Fed survey from July. Some of those homeowners may be able to refinance their mortgages, but others could have trouble finding a cheaper home to purchase, especially as lenders restrict loans to only those with strong credit scores.

The problem is particularly dire for younger Americans — whose home buying ability could be limited by lower earnings and higher levels of student debt — and for people of color, who have suffered a disproportionate health and economic burden from the pandemic.

More than 75 percent of white Americans owned their homes in the third quarter of 2020, compared with only 46 percent of Black Americans, according to the Census Bureau.

“The racial divide in homeownership is a huge factor that led to the wealth divides between white households and Black and Hispanic households,” Maleyev said.

“Homeownership is the most common way to build wealth in America, and so it’s a shame for a generation to potentially be left out simply because they’re priced out,” Maleyev added.