Without an increase in housing supply, home prices will continue to rise, the Zillow report said. (iStock)
The US housing shortage is worsening, with a housing shortfall expected to grow by an additional 1.8 million homes by 2022, according to Zillow. report.
The U.S. will have 4.5 million fewer housing units than needed in 2022, up from 4.3 million in 2021. This is due to a surge in population growth outpacing housing supply. The housing shortage is creating further obstacles for homebuyers who are already grappling with home affordability issues caused by high mortgage rates and soaring home prices. Thirty-year mortgage rates have been hovering near 7% since the start of the year, and home prices are That’s up more than 40% compared to the pre-pandemic home-buying boom..
Mortgage rates have risen largely in tandem with interest rates, and the accommodative policy is likely to lower borrowing costs. But the Federal Reserve isn’t expected to start cutting rates until later this year, with one cut expected in 2024. Lower rates would certainly create room for homeowners “locked in” by low rates to move out, but Fed Chairman Jerome Powell said in a statement that the national housing shortage will likely continue, just as it was before the pandemic.
“The simple fact is that there isn’t enough housing in this country, which puts homeownership out of reach for many families,” said Orphée Divongay, senior economist at Zillow. “High home prices are also affecting renters, with nearly half of renters feeling cost-burdened. Fixing the housing shortage is the long-term solution to making housing more affordable. We’re in a big hole, and it’s going to take more than just maintaining the status quo to get out of it.”
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New housing supply cannot keep up with demand
New home construction has increased in recent years, but more is needed to meet demand and address a protracted housing shortage that has hindered homebuying for more than a decade. More than 8 million groups and individuals were looking to create new households in 2022. But only 3.5 million homes were available for rent or sale that year, the Zillow report said. An additional 1.45 million homes were added to inventory in 2023.
To alleviate the housing shortage, the construction industry will need policy support, such as reforming zoning rules to allow more housing to be built. Other measures could include reducing parking requirements, eliminating permitting delays, and supporting the Housing Trust Fund.
“At its core, the housing market is driven by supply and demand,” Zillow said. “When the number of home seekers increases faster than the available housing supply, prices rise.”
“This balance has reached a tipping point as the Great Recession caused a decade-long slowdown in homebuilding and millennials, the largest generation in American history, reach the age to buy their first home,” Zillow continued. “The result is increased home affordability, exacerbated by persistently high mortgage rates.”
If you want to see if you qualify for a mortgage based on your current credit score and salary, consider visiting Credible, which allows you to compare multiple mortgage lenders at once.
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These cities have the biggest housing shortages
Zillow said cities on the West and East Coasts will experience the most severe housing shortages. New York and Los Angeles are expected to experience the largest housing shortages overall, about 390,000 and 337,000 units, respectively. From 2021 to 2022, New York City’s housing shortage will increase by more than 3.5%, while Los Angeles’s will increase by less than 1%.
According to the White House, President Biden has asked Congress to invest more than $175 billion in affordable housing efforts. statementThe administration proposes using some of the funding to incentivize state and local governments to build and preserve millions of affordable housing units for rent and ownership, including accessory dwellings and manufactured homes, and to reduce barriers to affordable housing development.
Biden also proposed a new Neighborhood Homes Tax Credit, a proposed federal initiative that would make housing more affordable for homebuyers by pumping $16 billion into growing the housing stock and $10.1 billion into home purchases. Down Payment AssistanceThe tax credit is provided on the condition that a low- or moderate-income homeowner occupies the home.
Biden is also calling for Congress to pass legislation that would provide a $10,000 tax credit to first-time homebuyers and first-time home sellers, split over two years in monthly payments of $400. This would amount to a 1.5 percentage point reduction in mortgage interest rates on the average home over two years.
Homebuyers can find competitive mortgage rates by shopping around for options, and they can visit online marketplaces like Credible to compare rates from multiple lenders at once.
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