The State of Housing Supply: ‘Not Enough Homes to Go Around’

Economic uncertainty, inflation, and rising mortgage rates are clouding the picture for the U.S. housing market, which is also facing a structural deficit of both for-sale and rental homes. During the “Getting Serious About Housing Supply: The State of the U.S. Housing Market” webinar hosted by the Bipartisan Policy Center, Jeff Tucker, senior economist of economic research at Zillow, and Caitlin Sugrue Walter, vice president of research at the National Multifamily Housing Council (NMHC), shared the current conditions and challenges facing the home buying and rental sectors, respectively.

In the single-family for-sale market, Tucker said the past two years of home price growth has pushed unaffordability to a “crisis stage.” The rise in affordability concerns has resulted in potential buyers becoming discouraged, causing sales volume to fall, and increasing inventory on the market.

“When we try to put all this competing information together, demand is stepping back in the face of affordability challenges [and] inventory is rising but not skyrocketing; what our model says is prices may dip seasonally for the remainder of the year, then have a seasonal bounce back in the spring [of 2023]. It’ll look like a bit of a seasonal plateau—flat, but with some seasonal growth,” Tucker said.

Tucker said inventory, “the barometer of the housing industry,” has recovered slightly from its record low levels in spring 2022 as a result of demand softening in the summer. However, inventory levels are still at nearly half the volume of 2019 levels.

“We’re looking for a new equilibrium [of inventory], but it’s not a runaway train heading for more affordable homes,” Tucker said. “Some people are hoping for a dramatic price plunge based on the media headlines, and our model suggests that’s not on the cards because fundamentally there’s not enough homes to go around for all the people who want to buy one.”

Walter said the lack of supply is also a current issue facing the rental side of the housing market. Research suggests 600,000 units are currently needed at a variety of price points to deal with supply shortages and an additional 3.7 million units will be needed by 2035, according to Walter. While data suggest nearly 900,000 units are under construction, the lengthened construction timelines and delays are inflating the numbers, suggesting the market is not at a risk of overbuilding, she explained. Regulatory costs are among the chief contributors to higher building costs and delayed construction schedules in the multifamily market…