The American dream of homeownership is slipping further out of reach for many, as the number of U.S. homes valued at $1 million-dollar listings or more hits a record high.
Thanks to a crippling shortage in housing inventory, home prices are soaring beyond the reach of countless middle-class families, with no end in sight. This crisis, exacerbated by policy missteps and economic realities, is leaving millions of Americans struggling to find an affordable place to call home.
A staggering 8.5% of U.S. homes are now worth $1 million or more, according to a Wall Street Journal report based on an analysis from Redfin, a leading real estate brokerage. This is a significant increase from 7.6% just a year ago and more than double the 4% share before the COVID-19 pandemic. The median U.S. home sale price hit an all-time high of $442,525 in June, while the median price for luxury homes—those in the top 5% of listings—soared to $1.18 million in the second quarter of 2024.
The root of the problem lies in a severe lack of available homes for sale. Many Americans are holding onto their properties, reluctant to sell due to the ultra-low mortgage rates they secured before the Federal Reserve’s aggressive interest rate hikes of 2022 and 2023. As a result, housing inventory has plummeted, driving prices through the roof. The U.S. currently faces a shortfall of 4 to 7 million homes, according to The Pew Charitable Trusts, leaving would-be buyers scrambling for fewer and fewer options.
Compounding this crisis is the sharp increase in mortgage rates since President Joe Biden took office. The average 30-year fixed-rate mortgage now sits at a daunting 6.49%, more than double the sub-3% rates seen at the start of Biden’s presidency, according to the Federal Reserve Bank of St. Louis. These sky-high rates have effectively trapped millions of Americans in their current homes, as they’re unwilling to trade in their low-rate mortgages for new loans with significantly higher interest rates.
Economists are warning that this surge in home prices is unlikely to end anytime soon. A June report from Bank of America predicted that home prices will climb by 4.5% throughout 2024 and another 5.0% in 2025. The report’s authors noted that it could take up to eight years for the housing market to normalize, as the “lock-in effect”—where homeowners are disincentivized to sell due to the gap between current and effective mortgage rates—continues to stifle transactions.
Adding insult to injury, housing costs rose 5.1% year-over-year in July, accounting for nearly 90% of the month’s total inflation. This relentless upward pressure on home prices and rental rates is squeezing family budgets and driving up the cost of living, even as wage growth remains sluggish.
As the nation grapples with this worsening housing crisis, the Biden administration and Democratic leadership seem more interested in playing politics than offering real solutions. Presumptive Democratic presidential nominee Kamala Harris is expected to address the housing shortage during the rollout of her economic plan, but her proposals fall far short of what’s needed. Harris intends to call for the construction of 3 million housing units and to offer tax incentives to builders who sell their properties to first-time homebuyers. However, such measures are unlikely to move the needle in a market starved for inventory and burdened by excessive regulation.
Instead of pushing for more government intervention, the focus should be on removing the bureaucratic red tape that hinders new construction, reducing taxes on middle-class families, and encouraging private-sector investment in affordable housing. Until policymakers address the root causes of the housing shortage, the dream of homeownership will remain just that—a dream—for millions of Americans.
