The Joint Center for Housing Studies (JCHS) of Harvard University recently released its annual “State of the Nation’s Housing,” and it paints a bleak picture of a real estate market plagued by inventory and affordability challenges.
During the recent webinar highlighting findings from the report, Daniel McCue, senior research associate at the center, said this year’s national housing story centers around how households and housing markets are dealing with and adjusting to high housing costs.
U.S. home prices are up 47% from where they were in 2020, he said, and rent is up 26%. What’s to blame? Inventory of homes for sale is still at a record low (below 30% where they were prior to the pandemic), which is driving up bids and, therefore, housing prices.
Home price growth has been widespread. Earlier this year, prices increased in 97 of the top 100 markets, with higher increases in the Northeast and Midwest and slower growth in the South and West.
Just a few years ago, said Sheryl Palmer, chairman and CEO of Taylor Morrison, it was typical to see someone pay just two times their income for a home, and now that number has risen to threes and fours.
“That’s just not sustainable,” she said.
Solving the inventory conundrum
Simply adding homes to the mix isn’t the solution. The study showed that an influx of new construction homes could prove counterproductive, further driving up costs.
Single-family construction has climbed steadily throughout 2023, JCHS found, with 2024 maintaining pace and averaging 1.06 million homes in the first quarter. New homes have accounted for nearly a third of available single-family inventory since 2021—comparatively, new construction made up only 14% of inventory three years ago, on average.
This poses a challenge. “What we really rely on for affordable housing is the existing housing stock, because when we build new, we tend to build luxury housing,” said Priya Jayachandran, CEO of the National Housing Trust.
What’s happened with existing inventory? We’re dealing with a cyclical “lock-in” of sorts—current homeowners that previously took advantage of below-market interest rates are missing that incentive to move. Right now, mortgage interest rates on a 30-year loan hover around 7%, compared to the average 4% on outstanding residential mortgages.
As a result, buyers are instead pushed to purchase these new, higher-priced homes. New-home sales increased by 4% in 2023, accounting for 15% of all single-family home sales compared to 12% in 2021.
Housing cost burdens skyrocket
As prices rise (and taxes and insurance), so too do cost burdens. One in four homeowner households (23.2%) are stretched thin, and the number of cost-burdened homeowners—those who spend more than 30% of their household income on housing and utilities—increased by 3 million to 19.7 million between 2019 and 2022.
“What’s not surprising but still alarming is how many people are still housing cost burdened,” said Jayachandran. “And that continues year-over-year to achieve record highs. While supply is marginally increasing and rents are starting to stabilize, it’s going to take a long time for those forces alone to satisfy the level of housing cost burden.”
Households earning less than $30,000 per year made up over half of the growth in cost-burdened homeowners from 2019 to 2022. During this time period, these homeowners saw residuals fall 18% to just $627 after inflation—the only money left for maintenance, repairs and accessibility improvements after paying for housing and utilities.
Chrystal Kornegay, CEO of MassHousing, said this is more of a commentary on the state of the economy and not just the housing market. “It just affirms that our economy is transforming into one in which work doesn’t pay, and we’ve got to figure out how to balance that better.”
