The Daily - Why Is It So Hard to Buy a House in America Right Now?

Episode Date: June 21, 2022

This episode contains strong language.When Drew Mena and Amena Sengal decided to relocate their young family from New York to Austin, Texas, they figured they’d have no problem.What they hadn’t realized was that, across the country, home prices — and competition to secure properties — had risen to jaw-dropping levels.Guest: Francesca Mari, a contributing writer for The New York Times Magazine and a fellow at the think tank New America.Want more from The Daily? For one big idea on the news each week from our team, subscribe to our newsletter. Background reading: Soaring demand, pinched supply, regular buyers acting like speculators … will real estate ever be normal again?For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Sabrina Tavernisi. This is The Daily. After more than two years of enormous demand, limited supply, and increasing prices, many Americans have found themselves unable to buy a home, a problem that is expected to deepen as mortgage rates surge. Today, Francesca Mari, a contributing writer at The New York Times Magazine, tells the story of Americans caught in the middle of the pandemic real estate boom. It's Tuesday, June 21st. For the past few years, I've been reporting on housing. And during the pandemic, I started noticing something. The housing market had gone absolutely bananas. Some big numbers coming out of the housing market today and they're not looking pretty if you're looking to buy or rent. The housing

market that is booming. Interest rates. In the month of July homes sold at the fastest pace in history. Starting in 2020 houses started selling at a faster pace. They're selling at the fastest rate since December of 2006 taking just nine days on average. The price of homes across the country were skyrocketing. Up more than 19 percent in the last year. And shattering previous housing records. To the highest level since the realtors began tracking this in 2001. Up 24. As I watched all this unfold, I started to think not just about what was happening in this chaotic housing market.

There's low inventory, sky-high prices, and bidding wars. Housing market hunger games about to get more expensive for the millions of us looking to buy a new home. But also what was happening to people who are having to participate in it. Buyers are gifting a trip to the Caribbean, promising to name their first born child after the seller, or offering $100,000 in cash over the asking price, just to secure a home. So I started talking to brokers and buyers and sellers, and I came across the story of one couple that was confronting the questions so many people are these days.

Why is it so hard to buy a house in America right now? Hello? Why is it so hard to buy a house in America right now? Hello? Hey there. We're here. Okay, there you go. Cool. Yeah, so let me tell you about what I'm doing, and you can ask me if you have any questions. I first met Drew Mena and his wife, Amna Sengal, last spring. They were both in their 30s at the time and had been living in New York City for about a decade.

We both, I think, strongly identified as New Yorkers, had kind of agreed that we would raise a family in New York, and I just never really envisioned myself outside of New York City. They owned a two-unit townhouse in Brooklyn, and they felt lucky to have it, with its yard and the kind of close-knit neighbors who compete to shovel each other's sidewalks after it snows.

But then the pandemic hit, and all that changed. Yeah, I mean, we were living in our technically one bedroom. Drew and I were sleeping in the basement. We had a desk down there, and then we had a desk at the kitchen table. When the city shut down, their daughter Edie was seven months old. They were both taking care of her and working full time. And then just being stuck like that for so long with a child and no child care help and both of us working just out of the whole other layer. And we were just like, we got to get out of here. Like, we just cannot manage this. And so there were a few months into this new reality when in August, Drew's company made

a big announcement. I found out that they were basically going to be relocating a large population of people to Austin. You know, Amina's family is from Houston, and you've got some roots in Austin, Amina. So at that point, we saw how much we would be able to get in Texas and Austin, and it would be like, oh, let's just move. Yeah, it would basically be like, yeah, fuck it, whatever,

let's just do it. Why the hell not? Amina and Drew figured they'd have no problem buying a house in Texas. After all, they had already bought in New York, and they felt like their budget, at a max of $575,000, would be more than enough. It was just above the median home price in Austin at the time. So one weekend in February of last year, Drew and Amna flew down to Austin to start house hunting.

They were looking for a turnkey house, one that doesn't need any renovation. The realtor had over 20 viewings, all lined up and ready to go. And then something unimaginable happened in Texas. For the first time in weather history... It started snowing. ...under a blizzard warning. We reported early this morning... The city of Austin and Texas as a whole froze over.

620,000 waking up without power in Texas this morning. And almost all of those viewings and open houses that Amna and Drew had planned for got canceled. Still, they saw what they could. So our real estate agent picked us up from the airport. We headed straight there. They were excited about the first house on their list. It was a house on the same block as my childhood best friend. But started to have doubts once they got inside.

The first sign was there was a guest bathroom right by the front door, and that's where we saw the makeshift sink with unsanded 2x4 wood. The seller had hastily renovated the bathrooms to increase the property value. I mean, I think the most distracting part was that you would put your hand on the countertop and it would scratch your hand. So that was that house. Another house, listed for $450,000, was a cramped duplex with concrete floors. The primary bedroom wall was shared with the house next door. And not a lot of privacy.

And we couldn't tell how much sound was going to come in between. And I think we just thought that felt strange. And then there was a house in South Austin that had brown walls. It was so dark and so dingy. And a single room in the back that had been divided to increase the number of bedrooms. They claimed to be two rooms, but really there was like a curtain in between them. And we did not put an offer in on this house. One of the last houses they saw was a powder blue townhouse

in a development full of powder blue townhouses. Like in my head, as we were driving up, I was like, little boxes on the hill. You know that song? Little boxes on the hillside. Little boxes made of ticky tacky. Little boxes on the hillside. Little boxes all the same.

It felt like that, right? Like it was just like, oh my God, all these homes look exactly the same. You were like living on top of one another and you had no idea which house was yours. They didn't even love any of these homes, and it was hard to think that they were worth half a million dollars. And yet, even in the middle of the costliest disaster in Texas history, the competition for these homes was fierce. Homes were going for 30 or 40% over the asking price. Buyers who had braved the storm alongside Omnindrew

were bidding on multiple properties at the same time, which is usually unheard of, and writing impassioned letters to make their case for why they would be the best trustee of the seller's home. And I think that's when we were like, oh, shit. Like, this is not going to go very well for us. And the blue one and the yellow one And they're all made out of ticky tacky

And they all look just the same What Amna and Drew hadn't realized when they started their search was that they had entered the most expensive and the most competitive housing market the city had ever seen. To be fair, Austin has been a hot market for a decade. It's always making the list of the coolest towns to move to. And in recent years, big names like Oracle and Tesla have set up headquarters. But the thing is, it wasn't just Austin. Across the country, the prices of homes

were skyrocketing. In the first year of the pandemic, home prices rose by 27 percent, the fastest acceleration in American history. The cutthroat competition that once defined only a few U.S. markets, you know, San Francisco, New York, Los Angeles, was becoming the standard across the country. Home prices in small and medium-sized cities rose by jaw-dropping levels. 35% in Austin, but also 28% in Sacramento, 33% in Salt Lake City, 36% in Austin, but also 28% in Sacramento, 33% in Salt Lake City, 36% in Phoenix, and 46% in Boise. Now, I know that at this point you might be wondering, wait, haven't we been here before?

I mean, most of us are pretty familiar with what happened back in the mid-2000s, the last time that home prices skyrocketed. A rising number of homeowners quite simply can't pay their mortgages. Back then, prices went up because there was a ton of demand for homes. But that demand was artificial. Almost half of new mortgages last year were these high-risk mortgages? Yeah, these, what are called subprime loans. It was juiced up by predatory lending on the part of banks who pushed subprime mortgages on people who didn't really have the budget to buy. The problem is a lot of people in these loans now

are finding they can't afford to make the payments, and they're becoming late. One out of 10 Americans is now behind on their mortgage. We haven't seen anything like this probably since the Great Depression, I think it's fair to say. That housing bubble led to the collapse of the stock market in 2008.

What started in America last year has now spread to every part of the world. The Paris market down by 9%. Austria is down by nearly 11%. And triggered a global recession. But what's been happening in the housing market more recently is actually pretty different. Since the recession, there's been a lot more regulation around mortgage lending. And a growing number of home purchases have been made by investors

who are able to beat out the average homebuyer with all cash offers. These days, the demand for homes is very much real and has been particularly affected by a few changes that have happened just in the past couple of years. COVID-19 has definitely changed the housing outlook nationally and locally. The first, of course, is the pandemic. Former living rooms, dining rooms, and basements now have to be staged as home offices, home classrooms, home gyms. People were stuck at home with their families. They grew aggravated with their space, and so demand for homes just shot up.

On the flip side... There's some new concerning numbers out showing a significant drop in new home construction. The supply of homes plummeted. In the first year of the pandemic, house listings dropped by 45 percent. Right now, across America, houses are easy to sell but hard to build. Construction of new homes totally stopped. Prices of materials like lumber are historically high and building projects are slowing down. There were global shortages of raw materials like lumber, steel, and cement,

and their prices also went up as a result. The national shortage of building materials is more widespread than at any time since they started tracking it in the 90s. And that was on top of years of underdevelopment of new housing that preceded the pandemic. It's going to be harder for first-time homebuyers to get into this market as the price of houses only continues to rise. On the other hand, people who already owned houses were reluctant to sell. They were afraid to open their doors to strangers during a pandemic.

There have been a record-breaking number of delistings in the real estate market since the coronavirus outbreak. A local realtor says it's definitely not business as usual right now. And even if they were willing to list their home and sell it, they didn't know if they'd be able to afford or secure a new home themselves. The second thing that added fuel to the fire The Federal Reserve will be making a big announcement on interest rates today was the fact that the Federal Reserve, fearing the pandemic would trigger another recession, lowered interest rates to help stabilize the market.

The Federal Reserve slashed interest rates to near zero to support the economy during the pandemic. As a result, interest rates for fixed 30-year mortgages fell to historic lows. For comparison, back in 2007, interest rates were around 6.5%. But in the first year of the pandemic, they were half that. They hovered between 2.7 and 3.1%. Homebuyers are rushing back into the market to take advantage of very low interest rates. So now, not only did a lot of people suddenly have the need to buy a house, but borrowing the money to do so became cheaper than ever. Mortgage applications to buy homes rose 5 percent week over week, up 18 percent year over year. And then there's the third and perhaps

biggest factor. New at six, millennials are reportedly helping the housing market recover. Millennials. Millennials are the driving force where we have almost 50 percent of buyers nationwide. Amna Drew and the 72 million other Americans born between 1981 and 1996 are aging into their prime home buying years. Millennials could be the big home buyers post-COVID-19. A lot of millennials graduated into the recession. They came of age in a bad economy and they dealt with stagnant wages. So it took them a lot longer to amass the amount of money needed for a down payment. Back when boomers were in their 30s, they owned about a third of America's real estate equity. Millennials control just 4%.

But the pandemic marked a real turning point. Now they're at a point where their jobs are incredibly solid, wages are the highest they've been in 20 years, and they're in their mid-30s, and they're buying houses for the first time. So when I look at a number saying close to 40%... Wages went up, and that combined with the low interest rates meant that for many millennials,

this was the first time that they could afford to buy. In 2020, they made up more than half of new mortgage originators for the first time ever. But unfortunately for them, it was harder to buy than ever before. By the end of Amna and Drew's trip to Austin, all of Texas had lost power. They were sitting in a dark house,

staring at their phones, using what battery charge they had left to bid on houses. And so I think we really were like, either this is a sign or this is a test. Like, it's a sign that we should just back out and just, like, figure something else out. Or this is a test, and, it's a sign that we should just back out and just, like, figure something else out. Or this is a test, and if we can get through this, then, like, everything is possible

and we'll be fine. So. In some attempt at normalcy, they decided to keep their bids at no more than $15,000 over asking. They put in offers on three homes at the same time. We didn't get anything. They put in offers on three homes at the same time. We didn't get anything. Nope. And didn't get any of them. We lost on every single one. One of them sold for $34,000 over asking, another for $55,000 over asking. And the first house they considered, the one with the makeshift plywood vanity,

erupted in flames during its inspection. The buyers pulled out and it was taken off the market. But a month later, it was relisted for nearly $50,000 more. It was hard to imagine a better metaphor for their search. The real estate market was literally on fire. We'll be right back. After Amina and Drew got back to New York, they realized that if they wanted to buy a house in this market,

they needed to shift their expectations and their budget. It's just like a recognition that like, okay, if our budget is like $550,000, then we can't look at anything that's listed at $550,000. Like we have to look at houses that are listed for $400,000. And that was like a very... They also realized they had no choice but to jump in and be just as cutthroat as everyone else. That meant bidding tens of thousands over asking and writing their own letters begging for sellers to choose them. But it also meant waiving some of the basic contingencies that were meant to protect them as homebuyers.

You hear about the fact that people are doing that, like they're basically waiving inspections or writing letters. It sounds like crazy, and you're like, there's no way I'm going to do this. I don't want to participate in this. This is insane. But sure enough, if you find a house that you really like and you want to be competitive, then you, you know, it didn't take us very long

to kind of like just fold and say, okay, like we're in this. They started waiving appraisal contingencies. Appraisals are a standard part of buying a house using a mortgage. Most banks won't cover a loan for more than a home's appraised value. So an appraisal contingency gives buyers the option to back out of their contracts if the bank won't lend the full amount

that the buyer is committed to paying. But in waiving the appraisal, Amna and Drew were on the hook to make up any difference in the price, in cash. Yeah, so we were waiving appraisal gaps above a certain amount. We were waiving, confirming that we actually got a loan from the bank. They also shortened their option period,

the number of days they had to inspect the home and back out of the contract in case something came up. The typical option period is 10 days. Amina and Drew cut theirs in half to five days. We were waiving everything. We were just like, man, I kind of hope that they say no because I don't know why I just signed that contract. As the weeks wore on, each day became a blur of Zoom tours and digital contracts.

Amna and Drew found themselves bidding on anything that looked remotely acceptable. I think I was doing like almost three or four contracts a week, if I could. Whoa! Yeah, we started losing track. Yeah, I was like, I have no idea what house I'm putting offers on right now. I don't know.

It just felt so irresponsible. I don't know. It just felt so irresponsible. By the spring, Amna and Drew had bid on 15 homes and hadn't gotten a single one. We were starting to panic a little bit. Drew had signed a contract to start his new job in Austin in May, and they'd already given up their place in Brooklyn. So Amna started asking their realtor about rentals. Did you actually send out any rental out? Oh yeah, I did. Oh,

you're kidding me. How many rentals did you apply to? It was four or five. Did you get any of them? Did you get any of them? No. No. The chaos of the housing market had also bled into the rental market, and so it seemed like they had run out of options. Until, a couple days later, Amna was going through her nightly routine of trawling the housing website Trulia.

So there's like an extra tab that you have to click on in order to see the for sale by owners. And there was this one house listed that caught her and Drew's attention. So there was just an extra step that you had to take to find the house. At 1,200 square feet, it was just about the same size as their place in Brooklyn. But it was in one of the neighborhoods that they were interested in, so they toured it over FaceTime. One of the things that we were so attracted to is the backyard is really big. And so we were thinking like, oh, this is going to be perfect.

Like we can build another little like, you know, studio, which we can rent out or we can use as a home office or like a home gym or whatever. At $525,000, it was priced a little more than the other homes in the area. But Amna and Drew had learned their lesson. So they decided to come out swinging. They bid $50,000 over right off the bat, maxing out their budget. They cut their option period to five days and partially waived their right to an appraisal. And when they heard back from the realtor...

waived their right to an appraisal. And when they heard back from the realtor, a real estate agent called us and was like, I think maybe it's looking good. And you're like, why do you say that? He was like, because the guy is asking whether or not you will water and harvest the potatoes in their backyard for them once you close and then share the potato harvest with them. The sellers, who owned an empanada company and had planted their own potato patch in the backyard, couldn't bear the thought of missing out on the crop. And so they asked Drew and Amina to continue watering it in exchange for splitting the harvest with them.

And we were like, we will take a potato cultivating class if that's what you want. I will hand pick, like, whatever you want. Can we have your house? Just give us the keys. Just give us a house. Hey, sorry, I took a wrong turn. So last July, more than half a year after their search first began. How are you?

Good, how are you? So nice to meet in person. Yeah, you too. I flew down to Austin to visit Amina and Drew at their new home. Oh my gosh. We're in the construction zone. So we're like in the stove over here and the refrigerator will go there and then we'll just have more counter space on this side oh amazing yeah and part of all of this stuff while we paint.

Edie, their daughter, had her own room. And there was a guest room for Amna's parents to come visit and for Amna to use as a home office. I can take you out to the backyard. Yeah. If you want to like take a walk around. Admire it. Yeah. Amna also took me out into the backyard.

And it really was a beautiful space. So yeah, so this is the huge backyard. And we have a fig tree. Oh, amazing. Which we discovered, which we're very excited about. Yeah. But there was also a catch. During inspection, Amna and Drew found out that the house had been recently listed as being on a floodplain.

So not only did that mean that they had to pay monthly flood insurance to FEMA, but they couldn't build anything in the backyard. Yeah, exactly. Exactly. But I think we realized, like, it's nice to have this much space because we can, like, host. And then Amna also pointed out this big dirt mound. That's the potato patch. So like where all that dirt is, is where the potatoes were. Where the potatoes had been. The seller had come back to harvest them and left a big stack on the front stoop for Drew and Amna to enjoy. Were you able to consume all the potatoes that they left you with?

No, we still have so much. I've given away so much. Like it was so much. How long do potatoes last? Apparently, if you leave the dirt on them, this is what they told us, apparently if you leave the dirt on them, they last for quite some time. So you can probably get like a month or two out of them. It's been a year since Amina and Drew bought their house. Since then, the housing market has cooled down a little.

After the Fed began raising interest rates in March to combat inflation, mortgage rates finally went up again. They now stand at around 5.78%, the highest level since the 2008 recession. But at the same time, home prices are also higher than ever. According to Redfin, the median U.S. home price is up 43% since March of 2020. In Austin, it's up by 66%. And the median mortgage payment for an American family is now at an all-time high of more than $2,500. It's still too early to know exactly how all of this is going to impact the housing market. I recently spoke to a chief economist at Redfin, Daryl Fairweather, and she told me that sales will probably fall.

And it's likely that prices will fall too. But they may not fall by that much. There's still very limited supply and a ton of demand, especially from millennials. Many people who can't afford to buy are turning to renting, and asking rents nationwide are now up 15% from last year. So what might happen is that, despite the high mortgage rates, for a lot of people, buying still may be their best option. Given all that, I decided to call Amna and Drew back one more time to see how they're feeling about their purchase and whether they have any regrets.

I don't know. I still think that we overpaid. I know that we overpaid. But then you have to think about it as like, all right, well, it's the real estate. that we overpaid. But then you have to think about it as like, all right, well, it's the real estate. But like, there are so many stories out there of people having nightmarish experiences that have, you know, I think there were Reddit forums where people had put in like 30 offers or 40 offers, like, and still haven't gotten a house. And there's a lot of people that can't afford to even go through this process at all. And like, that's tragic in itself. But given how much home prices increased last year and that buying is even more expensive now,

they're hoping that it was all worth it. By some estimates, the value of their house has already gone up by more than $100,000 since they bought it. So like, if you're just thinking about it strictly from a long-term investment, like, I guess that we're in a fine place. But I also feel like for my sanity and being able to sleep at night, you have to say that it's a success.

We have a house and there are a lot of people who have not been able to successfully buy a house because it has been so difficult. And so I am just happy and grateful that we are not looking anymore. I don't want to compete in this market ever again. It's horrible. So, you know, the fact that we're not doing it anymore, I feel like is a success. We'll be right back. Here's what else you need to know today. On Sunday, Colombians elected the first leftist president in the country's history. Gustavo Petro, a longtime senator who was part of an urban guerrilla group in his youth, beat Rodolfo Hernandez, a construction magnate who had run on an anti-corruption platform.

Petro's win is likely to reshape the relationship between the U.S. and Colombia. The country has long been Washington's strongest ally in Latin America. In his campaign, Petro pledged to transform the country's economic system, which he argues is broken. He also promised to place higher taxes on the rich, to halt all new oil exploration, and to expand social programs. And the World Governing Body for Swimming effectively barred transgender women from competing internationally. The move established one of the strictest rules against transgender participation in international sports. The vote by FINA, which administers international competitions in water sports, prohibits trans women swimmers from competing if they did not begin medical treatment before puberty, a time that some scientists believe gives trans women a lasting physical advantage over athletes who are born female.

The policy, which went into effect yesterday, only applies to international competition. And while there are no transgender women currently competing at that level, the move could guide the thinking of other sports federations and advance the growing movement to prevent trans women from competing in women's sports. Today's episode was produced by Caitlin Roberts, with help from Eric Krupke and Rachel Quester. It was edited by Anita Batajou, contains original music by Alicia Vietube, Marian Lozano, Daniel Powell, Corey Schreppel, Rowan Nemistow, and Chelsea Daniel, and was engineered by Chris Wood. Permission to cover Little Boxes by Malvina Reynolds was provided by Schroeder Music Company. Our theme music is by Jim Bumberg and Ben Landsberg of Wonderly. Special thanks to the New America Foundation, where Francesca is a fellow.

That's it for The Daily. I'm Sabrina Tavernisi. See you tomorrow.