Home Shortage Still Impacting Country
While the consumer price index for June has cooled to 3%, interest rates remain the major outlier. Potential homebuyers are facing a double whammy. Firstly, today’s interest rate for a 30-year fixed mortgage is 7.19%. This rate could add hundreds of dollars to a monthly mortgage payment compared to just 2-years ago. Secondly, homeowners see no reason to put their current home on the market when they are likely paying far less on their mortgage rate, knowing full-well that when they buy that new home, the rate will be far higher than what they are currently paying.
And if this was not enough, there is a severe housing shortage throughout the country which tends to elevate home prices.“Potential homebuyers have been watching rates closely and are waiting to come off the sidelines. However, inventory challenges persist as the number of existing homes for sale remains very low,” Freddie Mac Chief Economist Sam Khater said in a statement. And home shortages mean higher prices according to the laws of supply and demand.
All of this leaves the potential homebuyer in quite a bind.
“According to a new study by Zillow, the nation’s housing stock grew by roughly 6.3 million housing units from 2015 to 2021. The number of families living in the United States increased by 7.9 million and 7.1 million new households were formed during that period. When household formation outpaces growth in the housing stock, the number of available units falls, competitive pressure builds, pushing housing costs up.” added Khatar.
During the Great Recession of 2007-2008, housing starts plummeted. The pandemic then added to an already bad situation for those housing starts. Then, as mortgage rates increased, competition for affordable, entry-level housing was intense, which served to drive prices higher. Lower income families were, of course, hit the hardest.
Some folks decided to double-up, moving in with friends or distant relatives to resolve the issue.
Between 2015 and 2021, the total number of people doubling up grew by 6.1%. During that same period the housing stock grew by only 4.7%. By 2021, the number of families that were likely in need of their own homes exceeded available homes by roughly 4.3 million units. Productivity growth has not kept up with the needs.
According to calculations, there are 3.8 million missing homes across the U.S. According to this stat, 8 million families lived in a home that they neither owned nor rented for themselves.
This suggests that building smaller, more affordable homes should be a factor for homebuilders.
Other solutions include relaxing zoning regulations for more housing units including multi-family construction.
Due to all of these issues (mortgage rates, shortage of housing), housing affordability in the U.S. took a major hit: In the last year, the typical rent rose almost 5% - up to $2,048 per month, while the average home price jumped to nearly $347,000, according to Zillow.
But, at last, there is hope on the horizon. According to Khater, “A recent rebound in single-family housing starts is an encouraging development that will hopefully extend through the summer,”
New construction jumped by 21.7% in May, when a decline was expected by housing market watchers. And housing starts in June surged to an annualized rate of 1.63 million units up from 1.34 million units in April according to the Census Bureau.