Strong headwinds, including high interest rates and a lack of existing-home inventory, continue to hamstring the nation’s housing market, although there are growing signs that better days may lie ahead. Among the key statistics and forecasts released in recent weeks by government agencies, research firms and industry-related trade associations were the following:
HOUSING STARTS & NEW-HOME SALES
A “bottom is forming” for single-family home building, as builder sentiment continues to gradually rise in the face of solid demand, a lack of existing-home inventory and improving supply chain efficiency, the National Association of Home Builders said, adding that a lack of existing inventory coupled with solid consumer demand has boosted new-home sales to their highest level since February 2022. Noting that builder confidence in the market for newly built single-family homes has been rising in recent months, the Washington, DC-based NAHB said that the Federal Reserve nearing the end of its inflation-tightening cycle “is also good news” for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans, although expected wage-growth cooling “signals ongoing concerns” for affordability conditions in the year ahead. “Builders are feeling cautiously optimistic about market conditions,” said NAHB Chairman Alicia Huey. Despite the growing optimism, however, single-family housing starts in 2023 are down some 24% on a year-to-date basis, due to weakness at the start of the year, the NAHB noted.
EXISTING-HOME SALES
The housing market is short by more than 300,000 homes for middle-income buyers, according to an analysis by the National Association of Realtors. The Washington, DC-based NAR said recently that approximately 1.1 million homes are currently available for sale, an increase of 5% from a year ago, although the market is missing almost 320,000 home listings valued up to $256,000, the affordable price range for middle-income buyers (households earning up to $75,000). Middle-income buyers can afford to buy less than a quarter of listings in the current market, the NAR reported, noting that five years ago the same income group could afford to buy half of all available homes. “The lack of housing inventory continues to prevent demand from being fully realized,” said NAR Chief Economist Lawrence Yun. “It’s encouraging that home builders have ramped up production, but the supply from new construction remains insufficient. There should be more focus on boosting existing-home inventory with temporary tax incentive measures,” Yun observed.
RESIDENTIAL REMODELING
The COVID-19 pandemic focused attention on the nation’s homes “as never before,” lifting the U.S. remodeling market to an unprecedented height of $567 billion in 2022, according to the Harvard Joint Center for Housing Studies (see related story below). Nevertheless, Improving America’s Housing 2023, a report released by the Cambridge, MA-based Joint Center, found that despite the enormous boom in remodeling activity, the nation’s homes are older today than at any time ever, and are in growing need of critical replacements and maintenance. According to the Joint Center, the widespread adoption of remote work, massive growth in home equity and savings, and the aging of the housing stock boosted annual spending on improvements and repairs to owner-occupied homes 24% between 2019 and 2021, to $406 billion, an annual growth pace that was more than double the historical average. But despite the dramatic growth in remodeling activity during the pandemic, a meaningful share of the housing stock remains in dire need of investment, said Joint Center Managing Director Chris Herbert. In addition, most homes lack features that make them accessible for people with limited mobility, Herbert noted, adding that nearly two million homeowners aged 55 and over pursued projects for accessibility in 2020 and 2021, “but many more will need to make these modifications as the number of older adults and multigenerational households increases in the coming decades.”
Housing Burdens at Record Heights, Harvard Report Concludes
CAMBRIDGE, MA — Housing remains “prohibitively costly” for millions of U.S. households, and lower-cost housing is clearly needed along with investments to preserve the country’s aging housing stock and respond to climate change.
Those are among the key conclusions of The State of the Nation’s Housing 2023, a new report from the Harvard Joint Center for Housing Studies (see related story above).
Harvard’s annual report noted that recent interest-rate hikes have pushed homeownership out of reach for millions of renters at a time when large numbers of millennial households are at prime homebuying ages. Higher interest rates have also sparked a slowdown in the construction of new single-family homes, even as a nationwide housing shortage contributes to high housing costs, Harvard researchers said.
According to the Harvard report, U.S. housing markets continue to cool as higher costs weigh on both homeowners and renters. Home sales and construction levels have declined, while rental markets are experiencing sharply reduced rent growth and rising vacancy rates, the report stated. Nevertheless, home prices and rents remain elevated from pre-pandemic levels, leaving millions struggling with housing cost burdens, priced out of homeownership, or without shelter at all. Between 2019 and 2021, the country saw the most significant drop in housing affordability in years, with cost burdens reaching record levels, the report stated.
“Housing is a crucial engine of economic growth,” said Chris Herbert, managing director of the Cambridge, MA-based Joint Center. “Beyond affordability, investments are needed to mitigate the risks to the housing stock posed by climate change, and expand options for older adults to age safely,” Herbert added.