There’s a grown-up version of that conversation as well. For the first time in nearly four years, mortgage rates have dropped below 6%. But just how many Americans have home-buying money right now?

Half of us struggle to pay our monthly mortgage or rent, according to a recent survey. More than 80% of prospective buyers said last year that difficulty coming up with a down payment plus closing costs was holding them back.

For folks who can buy a home, the falling mortgage rates are great news: Even just one percentage point can represent tens of thousands of dollars over the life of a mortgage.

However, when nearly a quarter of Americans report living paycheck to paycheck, the recent mortgage rate news only highlights the growing disconnect between America’s economy and its people. It’s like hearing the Dow Jones industrial average has crossed the 50,000-point threshold when the wealthiest 10% of Americans own more than 90% of the stock and nearly half of all private-sector workers don’t have access to an employer-sponsored retirement plan.

Democrats are right to point out the shortcomings of President Trump’s economic policies. But what are the policies they are pushing to address the expanding chasm between the haves and the have-nots? Campaigning on the principles of democracy — free speech, peaceful transfer of power, due process — is a response to what Republicans are doing wrong. But those aren’t the issues that motivated voters and brought Trump back to power.

Trump won his second election in part because he sold a vision of wealth — and the promise of wealth acquisition is also part of the American dream. George Washington, John Hancock, Thomas Jefferson … the founding fathers were among the richest men in the colonies. Yes, the American Revolution was a fight for sovereignty. And that was not all philosophical. The American dream was always a material one, with wealth and ownership as centerpieces.

Modern progressives, especially elected officials in office, do not like to talk about money in that way, but the reality is that protecting democracy requires more than upholding the Constitution. It includes making sure people feel as if democracy is working for them. People will assess that in part by whether it’s hard to get by and whether it’s imaginable to get ahead.

That’s one of the reasons the Biden administration sounded so out of touch when it came to the economy in 2024. Far too often, the pain that the have-nots were experiencing during his time in office would be met with metrics that mostly benefited the haves. Same economy, different impact. Case in point: While grocery prices had soared for four years and inflation-adjusted wages were flat, corporations pulled in a record $4 trillion in profit just in the last quarter of 2024. CNN noted that the top five U.S.-based oil and gas companies pulled in profit of more than $250 billion during the first three years of the Biden administration, an increase of 160% compared with the same period of the first Trump administration.

The U.S. economy was breaking records while simultaneously breaking hearts.

Although Trump campaigned on that disconnect, since returning to the White House his policies have only served to exacerbate the issue. So far more than 90% of the tariffs he imposed have been paid for by U.S. consumers and U.S. businesses. We have rising healthcare costs. Trump’s first year back in office was the worst for job growth in a nonrecession year since 2003.

Trump certainly has a lot to answer for, and his response to Americans’ economic pain has been almost word for word the same as President Biden’s.

All of this means that Democrats have plenty to blame on Republicans during the midterm election campaigning this year. However, from a messaging perspective, Democrats have not wowed anyone with an alternative platform — thus the party’s historically low approval rating. Party leaders continue to talk about the fight for democracy, sounding like law professors consumed by theory. Rallying around key economic policy proposals that will help the work force bring home a bigger paycheck is equally important and demands more of the party’s time.

Trump’s critics need to stay on message regarding his attacks on democracy, and sure voters would like to be choosing candidates based on good governance. But when you can’t save money or see a way to buy a house before turning 40, “good governance” becomes a distant second to having money in your pocket.

The message that will resonate most is the one that makes voters feel that in America, you can still have both.

The post There are two Americas. Falling mortgage rates matter only to the wealthy one appeared first on The Hemet & San Jacinto Chronicle.

In honor of Labor Day, my trusty spreadsheet delved into some curious federal statistics that track the pay ladder, so to speak, across the 50 states. The latest edition of the report tracks pay for key segments of the workforce in May 2024.

The figures reveal a key pay boost that enables many Californians to afford a costly lifestyle. Yet that same cash flow also inflates the price of many California goods and services – most notably, housing.

Let me explain, starting with the annual pay for the typical worker using the median wage. That’s the midpoint between what the top-paid workers earn and the half who earn less.

California ranked No. 9 among the states at $56,900. That’s 18% above the 50-state median of $48,400. That’s not very impressive pay, considering the Golden State’s expensive living.

Top pay? Massachusetts at $62,300, Washington state at $61,600, and Alaska at $59,400. Lowest? Mississippi at $39,100, Arkansas at $41,000, and West Virginia at $43,300.

Additionally, California’s economic rival, Texas, ranked No. 30 at $47,500. Another competitor, Florida, ranked No. 35 at $46,900.

The upper half

To have a shot at personal economic viability in the Golden State, your paycheck could be in the ballpark of what statisticians call the “75th percentile” – or the median of the top half of wages.

California’s 75th-percentile income of $96,300 was 29% higher than the nation’s $74,400 and ranked No. 4 among the 50 states.

Where are the biggest paychecks for this pay grade? Massachusetts at $99,900, Washington state at $99,500, and New York at $96,400. Lowest? Mississippi at $58,900, Arkansas at $60,400, and South Dakota at $62,100.

Texas ranked 23rd at $75,600. Florida was No. 28, at $73,300.

Secret sauce

Focus on the gap between the median wage and the loftier 75th percentile.

Think of this spread as the premium pay given to high-skill jobs, highly coveted industries, or top-performing workers. It’s the secret sauce to balance the cost of living for numerous Californians.

This pay bump for California workers – the gap between the median ($56,900) and the 75th percentile ($96,300) – amounts to a 69% bonus. That’s the largest among the states and easily surpassed the 54% bump across all 50 states.

Just behind California were Maryland, New York and New Jersey, all with premium pay at 65%. The smallest gaps were in South Dakota at 36%, followed by Iowa and Kentucky at 40%.

Texas ranked 10th-biggest at 59%. Florida was No. 17 at 56%.

Mixed message

You can cheer California’s premium pay as one measurement of the state’s economic opportunity.

At the same time, it serves as an example of how income inequality makes California a challenging place for many people to thrive.

Ponder how this wage gap creates pricing pressures. Think about the size of a mortgage a worker could theoretically obtain.

For example, the median-wage worker in California who’d spend 30% of their salary on a house payment with a 6.5% mortgage rate could borrow $223,000. However, a 75-percentile paycheck gets a Californian a $377,000 loan.

Yes, both wage levels fall short of what’s needed for the common home purchase. In early 2024, the median-priced single-family home in the Golden State cost $814,000, according to the California Association of Realtors. The typical condo ran $655,000.

Well, is it any surprise that the Realtors’ “affordability” math showed just 17% of all California households could qualify to buy a single-family house? And only 24% for condos?

These gaps help explain why two-income families are the norm in California – with 1.34 jobs per household, the fifth-highest among states. Housing statewide is also densely populated, with 2.95 people per household, ranking No. 4 nationally.

Additionally, the wage gap is behind the choice of many individuals to live in inland areas or outside major job hubs. That’s where the cost of living, especially housing, can be slightly less stressful.

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The abnormal scarcity — compounded by the region’s long-running underproduction of housing — emerged when homeowners chose not to sell and give up pandemic-era mortgage rates. The so-called seller strike helped pushed home values to new records, despite rising borrowing costs.

Now the inventory picture might be changing.

“It’s getting a little bit better,” said Eneida Contreras, a Compass real estate agent who specializes in the San Fernando, Santa Clarita and Antelope valleys.

In April, the number of homes listed for sale in most Southern California counties rose from the same month a year earlier, according to data from Zillow.

Los Angeles, Riverside, San Bernardino and Ventura counties turned positive for the first time since the first half of 2023, each recording an increase of at least 5%.

Orange was the only county to see a decline, while in San Diego, inventory has risen for two consecutive months and is 18% above what it was a year ago.

To be sure, the availability of homes remains at historically low levels. But as it rises, it opens the possibility that prospective buyers will have an easier time making the largest purchase of their lives.

Jordan Levine, chief economist with the California Assn. of Realtors, said more homes are coming onto the market because owners are increasingly accepting that the new normal is interest rates in the 6%-7% range.

As people get married, divorced and have children, the “benefit of the low rate starts to be outweighed by having a house that doesn’t work,” Levine said. “Ultimately, these are people’s homes, too, and they are not just straight-up investments.”

Levine said he expects inventory levels to increase and home prices to be lower than they would have been if inventory continued to shrink. However, he and other experts said home prices are unlikely to decline. That’s because though more owners are coming to terms with high rates, many will likely choose to keep their sub-4% mortgages — a phenomenon known as the lock-in effect.

Other factors are at play. The economy is growing, and while most Southern California households can’t afford to buy, there’s a sizable population of techies, Hollywood types and other white-collar workers who can funnel excess cash into large down payments that offset high mortgage rates.

“The current level of inventory rise — which is a little bit, but not a lot — is likely to slow price appreciation but not turn it negative,” said Mike Simonsen, founder of Altos Research, a real estate data firm.

The rise in inventory is providing opportunities for buyers with means, but the market is still tough.

Interest rates are above 7%, and even if home prices rise at a slower pace, they will set records.

In Los Angeles County, the average home price in April was $890,516, an increase of 1.4% from March and surpassing the previous record, set in June 2022.

The six-county Southern California region climbed above its 2022 average home price record in March. It set another all-time high last month, reaching $875,388.

If mortgage rates noticeably decline, the lock-in effect could lessen and bring more homes onto the market. Falling mortgage rates would also immediately make housing more affordable.

Whether falling rates provide much relief is another question. Lower borrowing costs may bring a flood of additional buyers who quickly gobble up new listings and supercharge price growth.

“Building more housing is really what is going to break that cycle,” said Nicole Bachaud, a senior economist with Zillow.

According to the latest forecast from the Mortgage Bankers Assn., rates will remain high but will drop to 6.4% by the end of 2024.

Carol Otero of Rodeo Realty is among the Los Angeles agents seeing an increase in inventory. She estimated that the number of homes for sale in some San Fernando Valley neighborhoods has at least doubled in the past few weeks.

Buyers are eager.

Last Friday, Otero listed a four-bedroom home in Northridge. She said she has received six offers, all above the $869,000 asking price.

The post Buying a home in Southern California? There are now more options appeared first on The Hemet & San Jacinto Chronicle.

ADUs are one of the few bright spots for the state’s housing market at a time of rising construction costs, high interest rates, and continued local resistance to greater housing density. These unassuming units, often basement apartments, backyard cottages, and converted garages, are far more affordable to build than other housing options and have become a politically palatable infill alternative to apartment complexes.

With median construction costs of about $150,000 in California, ADUs cost less than a third of traditional, federally subsidized affordable housing. As a result, the median ADU in the San Francisco Bay Area and Central Coast is affordable (costs less than 30% of income) for a low income family, 31% of ADUs in Los Angeles County are affordable, and large numbers of ADUs are affordable in other regions, as well.

Over the past eight years, ADU construction has skyrocketed. California went from about 1,000 ADU permits in 2016 to 5,000 in 2017 to 25,000 in 2022.

This boom did not come easily. Many local governments have resisted ADUs, fearing they would overcrowd single-family neighborhoods. While some of these concerns are legitimate, the state’s housing crisis has persuaded state lawmakers that cities must allow more housing construction, even in built-out areas — and ADUs are one way to achieve that.

California lawmakers have worked for decades to limit local governments’ authority to block construction of these units. The effort began in 1982 when the legislature prohibited cities from categorically barring ADUs. Local governments responded by placing what a report from the Furman Center at New York University called “cumbersome and unpredictable discretionary  review requirements on applications for ADUs.”

Local resistance prompted the state in 2002 to mandate ministerial (rather than discretionary) local approval of ADU permits. Yet ADU production remained low.

Reforms in 2016 finally made inroads. That year, the legislature adopted two bills, AB 2299 and SB 1069. These required cities to allow ADUs on single-family lots. They also prohibited them from requiring design features such as direct pathways to the street and setbacks for garages converted into ADUs. These laws also eliminated parking requirements for ADUs near transit stops and for ADUs attached to existing houses; prohibited cities from requiring new water, sewer or utility connections for ADUs, or from charging utility fees for ADUs; and required ministerial permitting of ADUs to occur within 120 days.

More state laws followed, as legislators and advocates identified and removed other barriers to ADU construction.

Suddenly, ADU production surged across the state. According to the California Department of  Housing and Community Development, ADUs will meet 3% of the state’s housing needs for the period from 2021-2028.

Yet this growth has been uneven. In a recent study, the Rose Institute of State and Local Government analyzed differences in ADU production in Long Beach, San Diego, Anaheim, Pomona, Ontario, and Corona in light of the state’s assessment of these cities’ housing needs. In  Long Beach, the state’s per capita ADU leader, these units have met 5% of housing needs. By  contrast, ADUs make up only 2.6% in Anaheim. Within the Inland Empire, only 1% of housing needs are met in Ontario, 1.1% in Corona, and 2.2% in Pomona.

The report found that variations in ADU production can result from several factors, including the local housing market. For example, Ontario, like other cities in the Inland Empire, is still developing outward into greenfield sites, potentially reducing the demand for ADUs due to the availability of new single-family homes.

Familiarity with ADUs also matters. Planners in Long Beach, a leading producer of ADUs, describe these units as part of the fabric of their city, and say the knowledge they have gained processing ADU applications helps them approve permits faster than in some other cities. By contrast, other cities have less experience with this form of housing.

Local policies can affect ADU production, as well. Although the state has limited local control over ADUs, standards can still vary on several important dimensions. This is where local governments can most make a difference.

To help meet housing production goals, cities should assess where their regulations may be holding back ADU production and consider loosening standards in those areas. In particular, local lawmakers should look closely at three factors: parking requirements, structural setback requirements, and fees.

Parking requirements can add significant costs to new development, making them infeasible for homeowners without access to large capital flows. Structural setbacks can make larger ADUs geometrically infeasible, limiting the variety of options available to would-be buyers and renters. Finally, fees place high up-front costs on ADU developers, who often are individual homeowners,  further dissuading them from realizing their property’s potential.

Giving homeowners a little more wiggle room in how they build their ADUs could make the difference between catching up to statewide ADU production levels and missing out on a powerful tool to meet housing needs.

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David M. Greenwald | Contributed

A piece this week in the Atlantic lays out why housing is so expensive, pinning the blame on things like material costs, anti-building rules, NIMBY attitudes and other barriers.

This isn’t just about buying a housing—the cost of housing is at an all-time high both for home buying and rental.  And as Derek Thompson notes, part of the driver for that is the “inventory of available homes plunged to a record low” and the rental costs were related to the fact that “new housing construction relative to the total population was lower in the 2010s than in any decade on record.”

There are a lot of nuggets in this piece which combine to drive up the cost of housing.

For example, the cost of labor.  No, I’m not talking about union workers.

Thompson notes, “The construction sector hasn’t hired enough people to keep up with housing demand in this century.”

One problem—one third of construction laborers are immigrants, and “thanks to anti-immigration policies and the pandemic, annual immigration to the U.S. has fallen from about 1 million to 250,000 in the past five years.”

The housing crash in 2008 also wiped out all sorts of specialists.

He notes, “Since 2006 in California, the number of tile installers, carpenters, and rebar workers has declined by 23 percent, 30 percent, and 52 percent, respectively.”

Then there are onerous rules for building.

He cites the Terner Study which found, “The most significant and pointless factor driving up construction costs was the length of time it takes for a project to get through the city permitting and development.”

Thompson notes that the average project in San Francisco takes about four years to be permitted.  We know what it takes in Davis to get a project through to completion.  That doesn’t even take into account Measure J denials.  Take Bretton Woods in Davis, it PASSED a Measure J vote in November 2018 and will finally break ground… today.  Three and a half years later.

Never mind that it took a few years to get the project to a Measure J vote and never mind all of the projects that fall at the point of the vote.

The length of time it takes to get a project through drives up the cost.

As Thompson points out, each rule “has its reasons.”  There are also things like development fees and “local governments can directly benefit from new construction by collecting funds to be used for things like sewers, schools, or roads.

“These rules might not sound utterly diabolical,” Thompson writes.  “Who’s against money for schools? Who’s against safe low-income housing? No one, perhaps. But when you add them up, defensible rules can become indefensible barriers to new construction.”

He points out, “This is especially true for affordable-housing projects, which depend on many different financing sources and government agencies.”

Terner estimates that affordable housing projects cost about $48 more per square foot than market rate projects.

That means each apartment costs about $48,000 more to build (assuming 1000 square feet) or perhaps $4 million extra for an eight-apartment building.

“What happens when affordable housing isn’t affordable to build?” he asks.  “You get less of it.”

Recent estimates are that affordable housing now costs about $1 million per unit to build.  That’s a lot less housing that gets built because of it.

Then you have the NIMBYs.

Thompson cites “one angry, litigious neighbor. By filing an environmental lawsuit, this single person can delay construction for years by demanding that the planners conduct expensive and time-consuming research on the ecological impact of new development.”

Thompson calls this a vetocracy—“rule by veto.”

“Local vetocracy is expensive in two ways. It not only limits the supply of housing but also raises the cost of building,” he adds.  “When you turn over governance to the most litigious shouters, you implicitly allow older and richer homeowners to block construction for younger, poorer renters. That’s not a recipe for housing abundance. It’s a recipe for the status quo.”

Finally, Thompson laments the lack of innovation.  His comparison is fascinating.

He writes, “In the past half century, prices for TVs, electronics, computers, toys, clothes, and even cars have fallen in inflation-adjusted terms. But housing prices haven’t. Nobody has figured out how to do for housing what Henry Ford did for cars or Samsung did for flat-screen TVs.”

Indeed, he argues, “Around the world, construction appears to be one of the only commodity-producing industries that isn’t getting more productive.”

Why is innovation in housing construction lacking?

“I think the simplest, high-level way of explaining the lack of productivity [is] it’s hard to make money trying new ideas in construction, and strategies that improve productivity in other industries don’t really seem to work in construction very well,” he quotes Brian Potter of the Construction Physics newsletter.

The basic problem is, “Innovation thrives when entrepreneurs can experiment cheaply and fail without too much catastrophe. In housing, experimentation is expensive, and design failures can be fatal.”

So what are the solutions?

First, he suggests a change to immigration policy.  Second, ending single-family zoning, which makes building duplexes and larger apartments illegal.  Further, streamline the permitting process to make “development faster and easier.”  Third, “don’t let loud, angry neighbors demand infinite environmental reviews.”  He notes, “When construction policy is left to the loudest neighbor, the common answer to new units is no. But when the state is in control, it can serve the broad public’s need for more housing.”

Finally he looks at ways to innovate.

He concludes: “the short answer to the question “Why is it so expensive to build a house in America?” is: There is no short answer. Housing costs are complex because nearly half the cost comes from local rules and preferences rather than just materials and labor.”

He adds “the failures of U.S. housing policy aren’t mysterious error codes. They’re design flaws. This is what happens when a bad blueprint is built to plan.”

While I like this piece and agree with a lot of it, I would argue that the reason housing is so expensive is that, implicitly, too many people want it that way and too many people are advantaged by the status quo.

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