Andy Balmert thought he had checked all the boxes for home ownership. He has a college degree, built up solid credit and works as a special-effects operator for a luxury hotel casino on the Las Vegas Strip.
The market didn’t agree. Balmert’s search stretched for eight months as he spent countless hours on real estate apps and visited a dozen Las Vegas homes in a day. It ended in August after he received a $50,000 grant from a new program targeting middle-class households, another sign the affordability crisis has spread far beyond low-income Americans.
Balmert counts himself as lucky. Elevated interest rates, along with record-high home prices fueled by a severe supply shortage, have squeezed many middle-class households out of the market. A growing share of mid-income households were willing to thrust their debt into riskier territory last year to make the leap to ownership, according to a Bloomberg analysis of 10 million federal home-loan records from 2018 to 2023.
Many lenders and consumer advocates prefer that borrowers’ debt-to-income ratios don’t exceed 36% because, above that, higher rates and fees on mortgages are more likely and the risk of default rises. But last year, 58% of mid-income households approved for mortgages had debt-to-income of 40% or more — a share that’s the largest since at least 2018.
Housing is typically a local issue. But the affordability crisis has moved to the center of national politics, posing complicated challenges for both Democratic nominee Kamala Harris and Republican Donald Trump as they try to woo voters in battleground states with promises to address housing costs. In several areas of swing states, the pain is especially acute for new and aspiring middle-class buyers.
In Las Vegas, almost three-quarters of mid-income households approved for mortgages last year had debt-to-income above 40%. That’s one of the highest shares in the country.
Montgomery, Chester and Bucks counties — suburbs of Philadelphia where working-class homes were once plentiful — had the biggest drop in for-sale inventory, to just under 3,000 from 10,800 listings two elections ago.
About 41% of the moderately priced homes in Atlanta were snapped up by cash buyers last year — a whopping 22-percentage-point jump from 2018 despite growing attention to that trend.
Years of Pain
Even though the Federal Reserve has started cutting interest rates, it could take years to make homeownership affordable.
According to Fannie Mae calculations, it would take one of three things, or a combination of them, for affordability to return to 2016-2019 levels: The median price of a single-family home would need to fall 38% to $257,000 from September’s $414,340; median household income would have to rise more than 60% to $134,500; or the mortgage rate would need to fall to 2.35% from roughly 6.5%.
Harris said she would tackle the costs by expanding the housing supply. In the runup to the Nov. 5 elections, she has pledged to increase the number of affordable homes for sale or rent by 3 million by the end of her first term. Her plan includes tax credits for builders that construct entry-level homes and $25,000 in downpayment assistance for 4 million first-time buyers.
Trump has promised to attack the problem by cutting regulations that raise housing costs and by opening up federal land for housing development.
Some housing and economic experts caution that federal policy might not make much of a difference.
“I really think the focus has to be on the supply side,” said Mark Fleming, chief economist at First American Financial Corp., the parent of the largest US title-insurance company. “The challenge is that there’s not a lot that the federal government can do. A lot of it is sort of local zoning, local regulatory hurdles.”
Vegas Debt Stretch
Balmert, 34, started with a self-imposed cap of $250,000 for a starter home with a reasonable commute to his job in Las Vegas. He wasn’t even in the ballpark. The median price in the area is $426,000, up 50% from $288,000 five years ago.
He had preapproval from a lender to spend more, but he didn’t want to feel overextended.
Other middle-class households in the Vegas area stretched. Last year, 72% of new mid-income borrowers had monthly debt payments that ate up 40% or more of their incomes, compared with 53% just two years earlier.
The number of originations has plummeted since late 2021, partly because owners are reluctant to give up mortgages locked in at low rates. That means millions of Americans have gained wealth from the combination of rising home prices and cheap loans.
Still, the growing share of borrowers taking on higher levels of debt sheds light on the struggles of aspiring middle-class homeowners, particularly younger generations without wealth or parents able to help foot the bill.
“We have a younger generation who simply are not able to buy a house, period,” said Justin Jones, a commissioner of Clark County, which includes Las Vegas. “Not as many are wanting to buy houses. But even those who want to simply can’t without some sort of assistance” unless they’re in the highest income brackets.
Balmert didn’t qualify for most downpayment assistance due to income that he describes as “middle high.” A grant from a government-sponsored Federal Home Loan Bank helped him close on a two-bedroom, Spanish-style condo in the suburb of Lone Mountain for just over $300,000 — and a debt-to-income ratio well under 36%.
But his monthly payment is two times what he paid in rent. Balmert hasn’t taken any extended time off from work in the past few years and can’t afford a gap between jobs. “Not until I’m debt-free again,” he said.
The FHLBank San Francisco, which has a region that includes Nevada, California and Arizona, last year launched a $10 million pilot program specifically for mid-income homebuyers. The $20 million in funds added this year were quickly snatched up due to strong demand. Most of the participating lenders were credit unions.
Some experts say grants could make the affordability crisis worse.
“If you’re boosting the demand side of the equation with the downpayment assistance, are you really helping those people?” asked First American’s Fleming. “Because if there’s nothing for them to buy, all you’re doing is adding more people and then bidding up the prices.”
For Balmert at least, the grant made buying a home possible. As for Harris and Trump, he’s not convinced that either has a plan to help his millennial friends become homeowners.
In the last election, Balmert voted for Joe Biden. This time, he is undecided.
“I want to hear everyone out,” he said.
Few New Homes Under $600,000
Residents in suburban Philadelphia know what it’s like to have a shortage of affordable homes.
Xavier Wylie, a 35-year-old from West Chester, had a good job making $72,000 a year, which allowed him to save for a house after outgrowing the two-bedroom apartment he was renting with his girlfriend and kids, ages 13, 9 and 7.
But after searching for a house since before the pandemic, he wasn’t finding anything close to what he needed that he could afford.
“It was completely demoralizing,” Wylie said. “You see your kids getting older, you realize the need for more space, you have the want, you have the desire, you have the will, you work hard every day. And it just feels like you just keep hitting a brick wall and there’s nothing, nothing, nothing.”
Wylie, who is an exterminator, was finally able to buy a three-bedroom home in Coatesville in April, but only with the help of a $20,000 downpayment grant and credit counseling from the nonprofit Housing Partnership of Chester County. He paid $185,000 for a 1905 row house that sold for $94,900 in 2019.
Wylie’s experience is all too common in Montgomery, Bucks and Chester counties. Since 2016, the area saw the biggest drop in new and existing homes for sale among large US metropolitan divisions, according to a Bloomberg analysis of Redfin data.
Inventory has declined because homeowners with low mortgage rates are staying put, and developers aren’t building many sub-$600,000 homes because of the high cost of land, said Michael Maerten, chairman of the board at Tri-County Suburban Realtors.
Chester and Montgomery counties saw more population growth between 2020 and 2023 than anywhere else in Pennsylvania, and efforts to preserve green space, especially in Bucks and Chester counties, have exacerbated the shortage, said Kevin Gillen, a senior research fellow at Drexel University in Philadelphia.
“Where do these young people live coming out of college, coming out of the military, people who are starting their careers, starting young families and teachers and nurses and cops and electricians, where are they going?” Bucks County Commissioner Robert Harvie said. “There’s no place to go for them here.”
Both campaigns see Pennsylvania as critical to winning the presidency, and the vote in Philadelphia and its collar counties — Bucks, Montgomery, Chester and Delaware — may help determine who wins the commonwealth.
Wylie is on the fence about who to vote for and doesn’t think either candidate would be better than the other on the economy or housing.
“I’m just not sold on either one of them, honestly,” Wylie said. “I don’t believe either one of them are for the people.”
All-Cash Buyers
In the Atlanta area, investors eager to snap up rental houses pepper real estate broker Kim Owens with “30 calls a day looking for me to sell a house to them before I even put it on the market.”
Too often, investors and other cash buyers are the only ones who can afford to buy.
Metro Atlanta jumped onto the radar of private equity firms and real estate investment trusts in a big way after the Great Recession. The firms gobbled up foreclosed homes in the area at a discount of up to 11% compared with owner-occupant buyers, according to research cited by Brian An, an assistant professor at Georgia Institute of Technology, in a 2023 paper.
Atlanta has stayed at or near the top of cash buyers’ wish lists ever since. More than four in 10 homes sold between $300,000 and $500,000 in the area last year went to cash buyers of all types, from individuals to large institutions, according to a Bloomberg analysis of real estate data from Attom. Investors that purchased at least 10 properties in a year — often denoting an institution — snapped up 9% of those homes in 2023, a sharp decline from the pandemic, but still more than twice the 2018 level.
The trend was more pronounced in some areas inside the city of Atlanta, An’s research shows. In majority Black neighborhoods, for example, corporations including small investors were involved in 70% of single-family transactions between 2010 and 2021. That’s about twice the rate of other neighborhoods.
Owens, who is Black, said many of her owner-occupant homebuyers are so loaded down with student debt that their school loan payments sometimes exceed their mortgage payments. Those who can’t afford to buy, especially Generation Z, are instead renting new homes so they can at least enjoy new amenities, she said.
Faced with the choice between selling to cash-strapped individuals or to investors, homeowners often can’t resist the cash.
“Anyone who’s looking to buy for under $400,000 is going to be competing with investors,” Owens said.
If she’s elected, Harris said she would get Congress to remove tax benefits for large institutional investors that buy up owner-occupied homes and turn them into rentals.
“Some corporate landlords buy dozens, if not hundreds of houses and apartments, then they turn around and rent them out at extremely high prices,” Harris said last month at a campaign rally in Raleigh, North Carolina. “And it can make it impossible then for regular people to be able to buy or even rent a home.”
Taffy Carruth, a 41-year-old apartment complex manager who lives in the Atlanta area, has been house-hunting since January. She has been encouraged in recent months as more moderately priced houses hit the market, but says there’s still a lack of newer, spacious homes in her price range. At times, Carruth has wondered whether her roughly $60,000 income could pay the bills.
“This is what I make. Will I be able to maintain a home on my own?” she’d think. “Well, let’s log off.”
Methodology
Bloomberg News drew from multiple data sources to understand how mid-income households are faring under historic housing unaffordability.
To analyze mortgage trends, Bloomberg used Home Mortgage Disclosure Act data compiled by the Consumer Financial Protection Bureau from 2018 to 2023. We excluded originations made for investment and manufactured properties. The CFPB’s debt-to-income ratio shows a borrower’s total monthly debt, including the new mortgage, to total income.
To capture cash buyers’ activities, we obtained both metropolitan statistical area and address-level data on home purchases made by cash buyers (including institutional investors) from Attom, a third-party data provider, in the same period. Attom defines cash purchases as transactions where there was no mortgage recorded in a deed.
Lastly, Bloomberg analyzed inventory data from Redfin from 2016 to 2024. We focused on areas with significant activity — such as the 50 most populous MSAs.
Because housing trends vary widely from one region to another, we conduct analyses on a regional basis. We use median area income and house price at the MSA level. For median income, we use the yearly calculation prepared by the Federal Financial Institutions Examination Council from 2018 to 2023. To define middle income, Bloomberg followed the Pew Research Center’s definition of middle class: those with income of two-thirds to double the US median income.©2024 Bloomberg L.P.