This story is the fourth in a four-part series. Click here for Parts 1 and 2, and click here for Part 3.
The US is the homeless thing that is needed to meet population growth for over a decade, raising prices and shooting down the dreams of millions of buyers.
Buying a starter home was once a safe and achievable way to build wealth, but rising home prices, lower construction rates and economic volatility have left the US with few affordable homes.
Redfin’s chief economist Daryl Fairweather said there are two basic ways to see the depth of affordable housing shortages. This is the percentage of homes that cost households income to buy an average-priced home, and local income earners sell at affordable prices.
For prospective customers, Fairweather said that “how much you have to spend on income to buy a house” and that other methods focus on “the market share of the home is actually priced that way.”
The US has been able to create small dents in housing shortages as the Covid-19 pandemic gradually adds homes to the market.
However, home prices have risen much faster than supply as the combination of low pandemic interest rates and social change drives a historic increase in housing costs.
“We’ve been encouraging, very promising improvements and we want to see more stock,” said Nadia Evangelu, senior economist and director of real estate research at the National Association of Realtors (NAR).
“But we are far from a balanced market.”
Median home sales price
After surges amid the Covid-19 pandemic and economic recovery, home prices have slowly returned amid higher interest rates and slightly more supply.
Median home prices are a benchmark for how much housing costs in the US, driven primarily by the gap between housing supply and home buyer demand.
According to the Census Bureau, the median home prices in February were $414,500, down from $427,400 in January and $420,900 in the previous year.
Average home prices, reflecting a wider range of factors, were $487,100 in February, down from $507,900 in January and $509,000 in the previous year.
“When new households are formed faster than the increase in housing stock, the percentage of vacant homes falls down and rises to prices and rent,” wrote Orphe Divounguy, senior economist at Zillow, in a 2024 survey report.
Divounguy estimated in 2022 there were 4.5 million individuals or families who did not live in their own homes or rental units, despite their preference to do so.
“Of course, building more homes is a clear step towards reducing this lasting shortage,” writes Divounguy.
Home construction begins
The pandemic has led to an increase in housing construction rates. Especially in the south and west, the housing boom and the rise of remote work have driven massive demographic changes to the solar belt.
According to the Census Bureau, housing starts – new home construction projects begin – an increase of 11.2% in February.
Single-family homes rose 11.4% in February, the highest rate in a year, but mostly in a few parts of the country. Housing initiation has increased by 20.2% in the west over the past year, but has declined by 4.7% in the northeast, 21.5 in the Midwest and 8.3% in the south.
The number of homes under construction also fell from a year ago in February, with 6.7% to 640,000 homes falling.
Despite minor improvements in some places, home builders are becoming brave enough for those numbers to slip even further.
“While solid demand and lack of existing inventory boosted the production of single-family homes in February, our latest builder survey shows we are still concerned about the affordable conditions for builders, particularly notable financing and rising construction costs, tariffs on key building materials, and tariffs on key building materials.
Jing Fu, senior director of NAHB analysis and forecasting, said the group hopes that single-family homes will start to flatten this year amid concerns about tariffs and slowing the economy.
Affordable ratio
The rise in housing inventory is not evenly widespread among income levels, Evangelu said.
“It’s very good news as stocks are improving. Of course, it’s stock to increase at all price levels,” she said.
Evangelou said someone or family with an income of $75,000 can afford a home worth up to $255,000, according to a NAR survey. This covers 21% of the current list. Before the Covid-19 pandemic, homes will be affordable at around 49% at their income level.
“that [inventory] In the medium and high priced classes, growth is primarily occurring. For buyers who are under $50,000 a year, they are looking for a home for under $170,000, so there is a less affordable list for them compared to a year ago, as the conditions are actually worsening compared to a year ago. ”
The gap between how much Americans have to make money to buy a house and how much they need to rent an apartment is also growing.
Redfin calculated that the average American needs to make $116,633 each year, 81.8% more than the $64,160 needed to buy a typical apartment to buy a median home.
“Demand doesn’t really go anywhere. When we’re in a recession, demand may be weaker, but the number of people who need a home doesn’t fall,” Fairweather said.
