After two decades working in housing policy, Priscilla Almodovar is intimately familiar with the challenges the U.S. faces when it comes to housing.
The Brooklyn native took the reins of the New York State Housing Finance Agency in 2007 amid a financial crisis that was fueled by a crash in subprime mortgages. Today, buyers are facing the opposite problem: Demand for homes is so insatiable that even as mortgage rates remain elevated and home-insurance costs soar, home prices keep inching up to new record highs.
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As the chief executive 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 to it all. That lands her on the MarketWatch 50 list of the most influential people in markets.
“It’s a highly unaffordable market right now. We are monitoring and following all these trends, things that we’ve never seen before,” Almodovar told MarketWatch in an interview.
“You have home prices the highest we’ve seen in two decades,” she said.
Home sales on track for worst year since 1995
Home buyers and renters are facing record-high housing costs. The issue has become such a big priority for average Americans that the presidential candidates are proposing various solutions to make homeownership more affordable.
Meanwhile, some renters are taking matters into their own hands with rent strikes, while some aspiring homeowners have abandoned the idea and decided to rent indefinitely, finding it far cheaper than owning.
Even though mortgage rates have come down after the 30-year rate posted a big jump to 8% in October 2023, the average mortgage payment — which includes principal and interest, as well as property taxes and homeowners insurance — hit a new record high of $2,070 in August, according to Intercontinental Exchange. That’s up 24% from before the pandemic.
Mortgage rates are unlikely to drop back down to prepandemic levels anytime soon, Almodovar said. Regarding the 3% rate seen during the pandemic, she said, “we probably will never see that again in our lifetime.”
Even if buyers can afford the price of a home, there aren’t many options to choose from. The market is still enduring the lock-in effect, with current homeowners seeing little benefit in selling their current property and buying a more expensive one at higher interest rates.
The lock-in effect in particular is an unusual phenomenon that has stalled the housing market. Homeowners’ unwillingness 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.
Put another way, the lock-in effect “prevented” the sale of 1.33 million homes, the agency said.
Addressing the nation’s housing challenges will likely take more than initiatives from whoever wins the presidential election. Bringing the cost of housing down will also require policy makers at the federal, state and local levels to get involved, Almodovar said.
“There’s a consensus today that part of the solution is more supply,” she said. That means preserving the nation’s old existing homes and also building new units, she added.
Many of the obstacles to increasing housing supply are controlled at the local level, she noted.
“It’s zoning. It’s not-in-my-backyard NIMBY-ism,” Almodovar said. “The No. 1 issue is the local. That’s where decisions really get made.”
Homeownership is still part of the American dream
The pressure brought on by high rates and high prices has stalled the housing market. Fannie Mae’s economists expect only 4 million existing homes to be sold in the U.S. through 2024, the lowest number since 1995.
Nonetheless, most Americans aspire to own a home. About 84% of respondents in a 2023 survey by LendingTree said that homeownership is part of their American dream.
Almodovar grew up in New York City, and her parents bought their first home when she was 5 years old. In reaching that milestone, they felt like they had achieved the American dream, she recalled, noting that the idea is still “very much ingrained in what we think, and the mindset of our country.”
For that reason, the current environment has made housing “one of the most important domestic policy issues that we have to tackle,” Almodovar said.
Housing costs pushed up by unstable variables
It’s not just the challenges of saving for a down payment and of navigating elevated mortgage rates that are making homeownership unaffordable for many Americans. Rising insurance costs also mean homeowners are struggling more to fit their monthly payments into their budget.
Unlike a monthly mortgage payment, which remains the same throughout the life of a fixed-rate loan, insurance costs have surged over the last few 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 U.S. — illustrate the challenges climate change is posing to homeowners and to the housing industry.
Climate risk is something Fannie Mae is monitoring closely, Almodovar said.
As real-estate companies race to bring climate-risk information to prospective home buyers and homeowners, government agencies are revving up not only to offer assistance to affected homeowners but also to impose a moratorium on foreclosures of mortgages insured by the 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 skin in the game — and officials there are worried.
There is a gap between how much risk is understood by homeowners and what private-sector companies know, Almodovar said.
The federal government publishes maps of places that are expected to flood, but Hurricane Helene demonstrated how locales that are further inland and have historically not been prone to flooding can end up inundated. “So it is something that concerns us,” Almodovar said.
Ultimately, “climate is one of those areas where there’s no one silver bullet,” she said. Instead, “it’s really all sectors working together, and all industries working together.”
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