Pittsburgh is often described as a great city for anybody and everybody. It has a bit of everything: a distinct city culture defined by a rich history and a plethora of different industries. And it all comes at a price that gives other cities a run for their money.
However, the affordability factor that has helped Pittsburgh gain the label of “most livable city” is being challenged by a number of macroeconomic and local factors. Rent is getting more expensive, as is everything else, and the housing bubble remains inflated — and it’s starting to price out buyers.
But local government agencies are counting on Biden administration funding to ensure as many people as possible have their own roofs to live under.
The housing market is much like a house of cards dictated by prices. As the market picks up, prices surge and the house of cards gets incredibly tall. Of course, there are only two ways a house of cards comes down: it’s either struck down or carefully dismantled, top to bottom. The 2008 housing crash is a prime example of the worst-case scenario — a towering house of cards brought down by a powerful economic gust of air.
In 2022, that house of cards is getting tall, and many people fear a strong economic wind is coming. A primary task of the Biden administration’s American Rescue Plan Act (ARPA) has been to address the ballooning housing market, among other things like inflation and high unemployment.
In Pittsburgh, ARPA money is trickling down to the local government, which is using it in large part to address soaring real estate prices and help out potential homebuyers who are currently barred from entry due to costs.
Indeed, $15 million worth of American Rescue Plan money is being funneled into OwnPGH, perhaps one of the largest regional homebuyer assistance programs ever created in the area.
Developed by the Urban Redevelopment Authority of Pittsburgh (URA) in collaboration with the Housing Authority of the City of Pittsburgh (HACP), OwnPGH aims to drain air from the housing bubble by making Pittsburgh real estate more accessible to first-time homebuyers. The program is also helping existing homeowners by offering forgivable second deferred mortgage loans to help them avoid delinquency until they are ready to sell.
“As home prices have continued to rise, the growing divide in wealth in the United States has certainly magnified the need for this type of assistance,” says Tanika Harris, director of communications for the URA. “As we are now several generations removed from the creation of housing-related initiatives such as the G.I. Bill, Fannie Mae and Freddie Mac — all of which significantly increased rates of homeownership — there is very clear evidence that one of the most important elements of building wealth throughout generations is home ownership.”
To this end, the two housing bodies unveiled the details of the OwnPGH program in September.
First and foremost, OwnPGH is meant to help only low- and moderate-income earners secure private housing. Qualifying applicants for the program include people whose income falls at or below 80% of the Area Median Income for the city of Pittsburgh. According to URA data published at the beginning of the year, this would include single individuals earning $47,500 or less, and $54,300 for couples. Qualifying income scales up depending on the number of dependents. Applicants also must carry a debt-to-income ratio of under 43%.
Further qualifications for the program ensure that applicants will use the property only for their private residence; renting out properties is not permitted. Only single-family housing is eligible under the program, though single units within multi-unit residences like condos do qualify.
Qualified applicants have a range of options to help them navigate their housing journey. Most prominently offered through the program are grants exclusive to first-time homebuyers, who are defined in the guidelines as individuals who have not owned any real estate property in the last three years.
Applicants may receive grants of up to $50,000, funded entirely by ARPA funds secured by the URA.
First, mortgage borrowers applying for grants must secure their loans through private lending institutions deemed acceptable by both the URA and HACP.
Harris says that the URA will be “actively seeking its lending partners as the program launch gets underway.”
Loans will have amortization terms of no more than 30 years. The URA and HACP do not have a say over the terms of interest rates and payment amounts, though Harris assures that the “OwnPGH homebuyers will not be subject to inflated interest rates due to their participation in the program.”
Help for existing homeowners
HACP’s role in OwnPGH comes through its second deferred mortgages, meant to help first-time homeowners who fall within the same income bracket as potential buyers. The second mortgage offering is meant to assist these homeowners who may be struggling with their existing mortgage financing.
Qualifying owners can receive deferred mortgage financing funded by the HACP’s Homeownership Program. These loans have 10-year terms, during which, borrowers will make payments completely free of interest. There is no minimum monthly payment during these terms, meaning borrowers do not need to pay until they sell their home or refinance. If the house is not sold at the term’s end, the program will forgive the remaining amount owed.
According to Chuck Rohrer, director of communications for the HACP, the municipal corporation committed $1,037,500 in funding for these loans in 2022, as well as another commitment of the same amount for 2023. If the house is not sold after the 10-year term, the loan is forgiven.
The HACP says its Homeownership Program funds can be used as a match to the amount of OwnPGH grant funds homebuyers qualify for (up to $40,000). This means borrowers can be eligible for up to $90,000 in assistance through the entire program.
The American Dream?
The OwnPGH program is just one example of a diverse series of programs meant to assist homebuyers throughout the U.S.
Since the Great Depression, the government has been working on stimulating homeownership for lower-income Americans. The first program came by way of the National Housing Act of 1934, which established the Federal Housing Administration (FHA) and extended insurance against default to lenders in exchange for more citizen-friendly mortgage contracts.
Obviously, the country has seen its share of housing booms and busts since then, the most notable of which came by way of the 2008 subprime mortgage crisis. In the decades since the National Housing Act, lenders began offering subprime loans to Americans with poor credit scores. These mortgages give lower-income Americans a fairer chance to buy homes, but they do so with the drawback of much higher interest rates.
When that housing bubble popped, subprime mortgages turned into mass mortgage delinquencies, which then turned into mass foreclosures.
The typical mortgage delinquency rate, which measures how late mortgage payments there are at a given time in the U.S., stands at around 3%. In 2008, more than 21% of all subprime mortgage payments were delinquent, putting one in every five of these homeowners at risk of foreclosure.
The financial crisis that followed was massively devastating, and everybody old enough can remember the hardships that followed.
That event, like the Great Depression, spawned a stimulus of government programs aimed at helping Americans to secure their own homes at affordable rates. The Housing and Economic Recovery Act of 2008 helped struggling homeowners refinance their mortgages and injected money into local communities for developing affordable housing.
For anybody looking to buy a house now, there are plenty of similarities between the inflated market of today and that of 2008.
Home prices grew 43% between the beginning of the Covid pandemic and June of 2022. While the air is slowly coming out of this bubble, there are still lingering fears of another housing crisis. The Federal Reserve’s aggressive rate hikes are designed to scare off buyers. The fourth 0.75% rate hike came at the beginning of November 2022, and with another in December, some analysts are projecting an average mortgage rate of up to 10% by this February.
Much like in 2008 and periods of economic turmoil in the past, lower-income Americans are struggling to secure housing under these conditions.
In Pittsburgh, the issue of affordable housing is being accentuated by a 21% rise in the number of unhoused citizens since 2021.
The city has considered a range of different approaches to addressing booming prices in the cost of living. Pittsburgh City Council members called for a return of the housing cooperative, for example. A slate of countywide programs help developers to secure vacant properties and fund the redevelopment of existing structures.
But while these programs are theoretically meant to bring down the cost of living for renters, they do not help the many citizens who are trying to secure their own private property — a much more permanent fix.
More than just financial aid
OwnPGH is therefore a welcome change of pace. And, with the funding secured from the federal government, local legislatures do not need to make budget adjustments to accommodate such a hefty program.
Many existing programs across the country that do claim to help homebuyers hurdle the affordability barrier have ended up putting their users in bad financial states.
Zero-down mortgages are one example of this. While they allow a homebuyer to purchase property without needing to pay an initial lump sum, they often recoup the value of the down payment through higher-than-normal interest rates.
OwnPGH is aware of these issues and looks to mitigate the downsides that plague these other programs.
One way the program does this is by ensuring borrowers are being given fair terms with their mortgages by approving lenders. Rohrer says the HACP also weighs a number of factors to determine grant eligibility, including things like medical, childcare and education expenditures.
Additionally, the program includes plans to further assist homeowners in arrears to prevent foreclosures, like the HACP’s $3,000 foreclosure prevention assistance.
Harris says the URA also plans to partner with the City of Bridges Community Land Trust to provide stewardship services for homebuyers. “Those services will include foreclosure prevention and guidance if a homeowner experiences a loss of employment, illness, etc. that may make it difficult for them to make their mortgage payments.”
Since piloting OwnPGH in September 2021, the two entities say they couldn’t wait to get started putting the ARPA funding to work. OwnPGH will begin implementation over the next year.
From there, Harris says the URA plans to work with community partners and lenders to continue approving accommodation for marginalized Pittsburghers.
“[We plan to] do everything we can to ensure this is a program that opens the door to homeownership for those underserved communities who have been historically locked out of [homeownership opportunities].”
In October 2022, the URA board unanimously approved the terms of the program. Now, Pittsburghers just need to stay patient a little while longer as the URA starts rolling out the grant dough. Neither the URA nor the HACP has announced a launch date yet, so interested Pittsburghers should stay tuned for more information about applying.