After working in housing policy for two decades, Priscilla Almodovar is intimately familiar with the challenges the U.S. faces when it comes to housing.
The Brooklyn native took over the reins of the New York State Housing Finance Agency in 2007, amid a financial crisis sparked by a subprime mortgage crash. Today, buyers face the opposite problem: Demand for housing is so insatiable that even as mortgage rates remain high and home insurance costs soar, home prices continue to reach new record highs.
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As CEO of Fannie Mae FNMA, a government-sponsored enterprise that backs one in four residential mortgages in the U.S., Almodovar, 57, has a front-row seat. That puts her on the MarketWatch 50 list of the most influential people in the market.
“It is a very unaffordable market at the moment. We are monitoring and following all these trends, things we have never seen before,” Almodovar told MarketWatch in an interview.
“Housing prices are the highest we’ve seen in 20 years,” she said.
Home sales on track for worst year since 1995
Home buyers and renters are confronted with record high housing costs. The issue has become such a major priority for average Americans that presidential candidates are proposing several solutions to make homeownership more affordable.
Meanwhile, some tenants are taking matters into their own hands with rent strikes, while some would-be homeowners have abandoned the idea and decided to rent indefinitely, finding it much cheaper than owning.
Although mortgage rates have fallen after the 30-year rate made a big jump to 8% in October 2023, the average mortgage payment — including principal and interest, property taxes and homeowners insurance — reached a new record high of $2,070 in August, according to Intercontinental Exchange. That is 24% more than before the pandemic.
Mortgage rates are unlikely to fall back to pre-pandemic levels anytime soon, Almodovar said. Regarding the 3% rate during the pandemic, she said: “We will probably never see that again in our lives.”
Even if buyers can afford the price of a home, there aren’t many options to choose from. The market is still experiencing the lock-in effect, with current homeowners seeing little benefit in selling their current home and purchasing a more expensive home at higher interest rates.
The lock-in effect in particular is an unusual phenomenon that has brought the housing market to a standstill. Homeowners’ reluctance to sell resulted in home sales that were 57% lower in the fourth quarter of 2023 than in the same quarter the previous year, the Federal Housing Finance Agency estimated in March.
In other words, the lock-in effect “prevented” the sale of 1.33 million homes, the agency said.
Addressing the country’s housing problems will likely require more than initiatives from whoever wins the presidential election. Bringing down the cost of housing will also require policymakers at the federal, state and local levels to be involved, Almodovar said.
“There is consensus today that increased supply is part of the solution,” she said. That means preserving the country’s old existing houses and also building new units, she added.
Many of the barriers to increasing housing supply are managed at the local level, she noted.
“It’s zoning. It’s not-in-my-backyard NIMBY-ism,” Almodovar said. “The No. 1 problem is the local one. That’s where the decisions are really made.”
Homeownership is still part of the American dream
The pressure of high rates and high prices has brought the housing market to a standstill. Fannie Mae economists expect that only 4 million existing homes will be sold in the U.S. through 2024, the lowest number since 1995.
Nevertheless, most Americans aspire to own a home. About 84% of respondents in a 2023 LendingTree survey said homeownership is part of their American dream.
Almodovar grew up in New York City and her parents bought their first house when she was five years old. When they reached that milestone, they felt like they had achieved the American dream, she recalled, noting that the idea is still “deeply rooted in what we think and in the mentality of our country.”
For that reason, the current climate has made housing “one of the most important domestic policy issues that we need to address,” Almodovar said.
Housing costs are driven up by unstable variables
It’s not just the challenges of saving for a down payment and dealing with high mortgage rates that make homeownership unaffordable for many Americans. Rising insurance costs also mean homeowners are having more trouble fitting their monthly payments into their budgets.
Unlike a monthly mortgage payment, which remains the same throughout the life of a fixed-rate loan, insurance costs have skyrocketed in recent years, adding instability to an otherwise stable 30-year loan.
Recent natural disasters – including Hurricanes Milton and Helene, which caused significant damage in parts of the southeastern US – illustrate the challenges climate change poses to homeowners and the housing industry.
Climate risks are something Fannie Mae is watching closely, Almodovar said.
As real estate companies rush to provide climate risk information to potential homebuyers and homeowners, government agencies are stepping up not only to provide relief to affected homeowners, but also to impose a moratorium on foreclosures on mortgages insured by Federal Housing Administration.
They are also trying to stay ahead of the risk by encouraging people to make their homes more resilient to climate disasters.
Because it guarantees one in four mortgages in the U.S., Fannie Mae has a stake in the game — and officials there are concerned.
There is a gap between how much risk homeowners understand and what private sector companies know, Almodovar said.
The federal government publishes maps of places expected to flood, but Hurricane Helene showed how areas further inland and traditionally not prone to flooding can eventually become inundated. “So it’s something that concerns us,” Almodovar said.
Ultimately, “climate is one of those areas where there is no silver bullet,” she said. Instead, “it’s really all sectors working together, and all industries working together.”
