U.S. Economy: Housing Market Is Booming but Challenges Continue


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Audio Transcript:

Kathy Fettke: The housing market has been booming, but not for everyone. Many Americans are struggling financially as the economy recovers from the pandemic. High home prices are impacting both homebuyers and renters, and we could see a wave of foreclosures and evictions when pandemic moratoriums expire. Those are just a few of the challenges mentioned in “The State of the Nation’s Housing 2021.” It’s put together by the Joint Center for Housing Studies of Harvard University.

Hi I’m Kathy Fettke and this is the Real Estate News for Investors.

Home sales have been soaring in the past year. Many Americans have been on a home-buying binge as the country shifts to a post-COVID reality. Existing home sales were up 20% year-over-year from September of last year through February, and new home sales were even higher. They rose 30% year-over-year from June of last year through February.

Home Sales and Prices Are Soaring

Existing homes have been hobbled by a historically tight supply that grew worse during the pandemic because sellers didn’t want to list their homes. The Harvard study shows that the existing home inventory shrank 30% on average from June of 2020 to February of 2021, to just 1.05 million homes. That drove the months of supply down from a low 3.9% on average in 2019 to 3.1 months last year. It even dipped below 2 months briefly, before the end of last year. And 6 months is considered normal.

That kind of demand for homes has pushed prices consistently higher. The S&P Case Shiller Home Price Index shows that home prices were up 13.2% year-over-year in March. That’s up from 4.2% in the first quarter of last year, and 3.5% in 2019. Some people have worried about a price bubble, similar to what happened before the Great Recession, but conditions are different now than they were then. It’s not as easy to get a loan now, so homebuyers are better qualified with more equity in their homes. Interest rates are also lower, giving homebuyers more purchasing power, and a greater desire to “buy now.”

Builders have been producing more homes, to help meet demand. Single-family housing starts topped a seasonally adjusted annual rate of 1.0 million last August. That rate of production has continued since then. If it continues through August of this year, it will be the first year that single-family starts have been above the one million level since 2007.

Homeownership Rises, But Not for All

The report says that homeownership rates remain “on an upward trajectory” but not for everyone, because of rapidly rising home prices. For many, home prices are rising much faster than their salaries. The price-to-income ratio last year was 4.4, nationally. Twenty years ago, it was less than 3 in a majority of the 100 largest U.S. metros, and higher than 5 in just a few. Last year, it was less than 3 in just 16 of those big metros and higher than 5 in 23 of them.

Many homeowners and renters are also facing the risk of foreclosure or eviction as pandemic moratoriums are lifted. The number of homeowners in forbearance programs has dropped considerably but the report says that the future is uncertain for 2.3 million borrowers. They are still in forbearance and have not yet resumed their mortgage payments, at the time of this report. It isn’t just the job losses, but the loss of loved ones who helped maintain the family and pay the bills.

Renters Impacted by the Pandemic

The situation is similar for many renters. Millions of renters lost their jobs at the beginning of the pandemic. The Household Pulse Survey shows 51% of renter households had lost income because of the pandemic by March of this year, but that situation is very different from region to region.

The report says the Southeast has the highest number of renters who owe their landlords, with Mississippi topping that list at 27%. Delaware and Louisiana follow at 25%. The areas with the lowest number of renters who need to “catch up” are farther west in the Midwest and Mountain regions. The report mentions Idaho, North Dakota, Montana, and Utah. Just 12% were behind on their payments early this year.

Near-Term Housing Outlook

The report offers a near term outlook at opposite ends of the spectrum for many American households. There are those with good-quality housing and secure employment along with millions more who are struggling. It expects that dichotomy to continue despite the economic recovery. It also expects demand for homeownership to remain high, especially among younger buyers, and it says that inventory issues could ease up as more sellers come on the market. That could put a damper on home price growth, but builders also need to keep pumping new homes into the market to keep prices affordable.

It expects some of the housing market changes that happened during the pandemic to be temporary, including the drop in demand for high-end urban rentals. But the demand for suburban homes among buyers and renters may be here to stay, especially for those who continue to work remotely. You can see vacancy rates shift higher for urban rentals and lower for rentals in the suburbs, early last year. That has reversed somewhat as the pandemic dies down, but researchers expect suburban demand to continue.

Longer-Term Impacts

Longer term impacts on the housing market include a big drop in population growth. Researchers cite a combination of factors including a falling birth rate, a big drop in immigration, and a surge in mortality, thanks to the pandemic. The report says U.S. population growth is the slowest it’s been in 100 years.

That could help resolve the housing gap if there are fewer people competing for homes, but it could also have a negative impact on the economy as a whole. Researchers suggest the need for policymakers to “reinvigorate population growth” by increasing immigration, providing childcare for working families, and improving economic growth by addressing the income and wealth gap.

The report dives much deeper into current housing conditions. Check the show notes for links to the report at NewsForInvestors.com.

Thanks for listening to the Real Estate News for Investors. If you like what you hear, please be sure you subscribe. And don’t forget to give us a thumbs up or a stellar review on whatever podcast platform you are using.

Thanks for listening. I’m Kathy Fettke.

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