It’s no secret there’s a housing shortage in the US, and it’s not likely to get better any time soon. Hannah Jones, senior economic research analyst for Realtor.com, told Business Insider this year “will still be a challenging housing market.”
“Buyers are seeing less home inventory, less homes for sale in the market, and sellers are less incentivized to sell in today’s market,” Jones said.
That’s partly due to relatively high mortgage rates, Jones added.
“Also, they would then have to buy into a higher price market on top of higher mortgage rates,” Jones said about sellers.
Jones added sellers’ wariness is contributing to the problem of relatively low supply to choose from, “worsening” the housing gap “where household formations have outpaced new construction,” Jones said.
Amid some Americans moving out from family homes or living with roommates and forming new households, “the gap between total housing starts and household formations widened from 2.3 million housing units between 2012 and 2022 to 2.5 million units at the end of 2023,” a recent Realtor.com report said.
The situation is even more stark when looking at single-family homes alone. “The gap between single-family housing starts and household formations grew from 6.5 million at the end of 2022 to 7.2 million at the end of 2023 as household formations remained steady and single-family home construction waned,” the report continued.
While people may find it tough to find a single-family home, multifamily apartment buildings might be a more affordable option. Jones said, “multifamily housing has been a bit of a bright spot in the last couple of years.”
“For buyers who can’t quite afford to purchase in today’s market, there should be more affordable renting options to kind of wait out the market a little bit to see if it improves or to just save a bit more money so participating in today’s market is a bit more feasible,” Jones said.
How long it could take to close the gap depends on what data and assumptions are looked at. It could take just a handful of years — but that may not be likely in reality as this also would require massively increasing the number of housing starts.
“If only single-family homes are considered, the rate of housing starts would need to triple to keep up with demand and close the existing 7.2 million home gap in 4 to 5 years,” the Realtor.com report stated.
Jones said the ramp-up in production needed to achieve that in just those few years isn’t really a “reasonable expectation” for builders.
“It will require sustained new construction activity, and it’s likely that it will continue to be an issue for the years to come because it’s just not likely that new construction activity is going to pick up to that level,” Jones said. “However, we have seen that multifamily activity, at least the pickup in multifamily activity, provides places for people to live.”
That could be a good thing as Jones said this could take pressure off prices.
There are two changes in particular that are needed to help resolve the housing problem according to Jones: either demographic or technological shifts.
The demographic shift would include having some homes from the aging population go on sale, Jones said. Better technology could make building homes more efficient and less expensive, Jones added.
“I think that if the market continues as it is now, it is unlikely that we’re going to see a big shift,” Jones said.
