The current housing market presents lots of challenges for first-time buyers and people in the market for a home.
Challenges include rising interest rates and limited inventory, which have pushed up the cost of purchasing a house throughout much of the Washington area.
In addition, there are historic factors that persist and contribute to higher hurdles for people of color trying to buy a home.
Buying a home can be rewarding and create lifetime memories that are part of what many consider the ‘American Dream.’
It can also be economically transformative.
“Home ownership is the primary way by which Americans accumulate wealth,” says Lisa Sturtevant, chief economist with Bright MLS.
“We have seen over the past few years that the delay in access to homeownership just delays that access to wealth creation,” she says. “Each year homeownership is delayed, it’s less time able to accumulate that wealth, accumulate that equity.”
She points out that over the last 60 years there have been many efforts to try to close the gap in home ownership between white and non-white households in the United States.
But the gap remains as large today as it was when the Fair Housing Act was passed in 1968. The federal law prohibits discrimination by direct providers of housing, as well as banks and lending institutions.
“So, while there have been a lot of efforts underway to close that homeownership gap to allow wealth creation…we still have a long way to go,” Sturtevant says.
She also points out that home ownership goes well beyond helping develop economic well-being. Research shows that access to stable and affordable housing also has “a lot of great social positive outcomes” and is “good for communities and kids when they don’t have to switch schools a lot.”
Rep. Glenn Ivey of Maryland’s 4th District points to his own family’s experience. He says when his parents bought their first home decades ago in northern Virginia, it cost about $29,000. The property now would likely be valued at more than $1 million.
“You can see how that has an effect overall,” Ivey says.
He jokes, “We’re not the Wizards of Omaha” with the stock market, referring to billionaire Warren Buffett.
“You just (buy) a house in the area and hit the timing in the right way, it can really be transformative,” he says.
As a parent of six children, Ivey echoes Sturtevant’s point on how a home can set up kids for success by allowing them to attend good schools.
The importance of transparency and access to home listings
Anyone who has been involved in looking for a home to buy knows it can be exhausting and exhilarating.
Amit Kulkarni, the chief marketing officer for Bright MLS, notes housing is also a fundamental human right — like food, water and shelter.
“Our view is that everybody, regardless of race, color, sexual orientation…should have the same ability to access home ownership,” he says.
He points out that’s where Bright MLS comes in.
“What we want to do is provide a place where everybody — regardless of what their station in life is or any other criteria — has the same ability to access any home for sale,” Kulkarni says. “The only barometer being can you afford that home.”
He says that is what the MLS — multiple listings service — provides. It’s a database of homes that is accessible to anyone who is in the market.
Kulkarni notes that the U.S. is unique in that regard, compared to many other countries.
While the U.S. has had issues with housing discrimination, other countries are trying to become more like the United States is today, with transparency in the listings.
“To me, I think the MLS is really foundationally critical to fair housing in this country,” he says. “Because without the MLS we’re going back to a system of who you are and who you know.”
Problems with pocket listings
Pocket listings involve homes that a real estate agent or broker is selling, but that are not publicly listed in the marketplace.
“I’ll just say that we’re not a fan of pocket listings,” Kulkarni says. “I think pocket listings really benefit the listing broker. It doesn’t really benefit consumers.”
Kulkarni says Bright MLS has a requirement that realtors must submit homes that are being marketed within a tight time frame.
He also points out that research has suggested that sellers could actually be leaving money on the table — close to $50,000 — by failing to have a home listed more widely.
“So as a seller, you’re not getting the most bang for your buck because you’re not having it on the open market where everybody can look at it and let the open market drive the price,” Kulkarni says.
Buyers, particularly in the Washington area, may be missing out “in this environment of really restricted inventory,” he says.
Sturtevant says pocket listings in the region aren’t as prevalent as they were during the pandemic, but they haven’t disappeared.
“In the Washington area, they tend to be more highly concentrated in majority-white neighborhoods than in more diverse neighborhoods,” she says. “That ends up being problematic for fair housing reasons and just generally in this very tight housing market, giving people fewer options.”
Hurdles for first-time homebuyers
Housing affordability has dropped to its lowest level in nearly four decades.
Several factors are making it difficult for many Americans to buy a home.
In the Washington area, home prices have continued to rise in recent years, in many cases 40 to 50 percent, Sturtevant says. Also, interest rates have more than doubled.
“We have seen over the last ten years or so that housing costs have increased much faster than incomes have,” she says.
Also, there’s been greater demand for housing, with many millennials seeking to purchase their first home.
At the same time, new housing construction has been low from a historical standpoint.
So first-time home buyers are “finding it very, very hard to get into a home,” Sturtevant says.
“Qualifying for a mortgage takes an average of more than $125,000 for the typical home and that is just out of reach for many young people who are looking to become a home owner in this particular market,” she says.
Ivey says he’s seen the challenges firsthand, as his adult children have looked for homes.
“Obviously the ability for the parents to help is a big factor I think for a lot of their contemporaries,” he says. “But for people in their late 20s, early 30s, it’s tough.”
Sturtevant also points out that the parents of many young people may not have the resources to help their children purchase a home.
Looking forward and helping prospective homeowners
Discrimination in housing may not be as overt as it once was, but it hasn’t disappeared.
Kulkarni says Bright MLS believes there are several things that could be done from a regulatory standpoint, to help consumers.
They include:
- Requiring real estate brokers to offer to advertise and perform services on an impartial basis
- Making sure that brokers offer unbiased access to all property information
- Requiring brokers to provide transparency throughout the whole purchasing process
“If we can work together with state, local and federal legislators to bake these things into state law, I think that would be really, really critical to enhance those consumer protections,” Kulkarni says.
Sturtevant says it’s important that “nobody is excluded from the process” of buying a home and that everyone has access, as they do through Bright MLS.
Ivey says problems with the discriminatory practice of redlining continue to pop up and there is still a need for the U.S. Justice Department and state officials to stay on top of the issue.
Prospective homebuyers now have more resources than ever online to check out homes. But ultimately, the data is derived from the MLS.
“When the rubber meets the road and people get really serious about buying and selling a home, they go to the MLS,” Kulkarni says. “85 to 90 percent of transactions that are facilitated in the United States are actually facilitated through the MLS.”
Kulkarni says it’s no surprise that people check out homes on sites that he says provide “infotainment.”
Ultimately, however, he believes the MLS is the best source for the most accurate real estate information.
As for the challenges facing homebuyers, there are some positive developments moving forward.
Sturtevant notes that while homes remain expensive in the Washington area, the region’s economy is strong, the unemployment rate is as low as it’s ever been and wages have been growing faster than they have been in recent years.
“This is a place that people want to be. This is a place with a great quality of life,” Sturtevant says.
