October 26, 2022
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Top economist for homebuilders says due to rising mortgage rates, the 2023 market will be "weak."
How dire is the decades long housing shortage in the United States?
Awful according to recent data, experts say. And there's apparently no improvement for the foreseeable future thanks to continued demand for homes despite rising mortgage interest rates and high home prices.
"There doesn't appear to be any end in sight," Nadia Evangelou, a senior economist and director of forecasting for the National Association of Realtors told USA TODAY.
Depending on who you ask, experts believe there is a nationwide housing shortage of between 2 million to nearly 6 million newly built homes.
Evangelou said the association estimates there's a shortage of 5.5. million homes. The organization uses its housing shortage tracker to compare the supply and demand by the number of single-family housing permits issued for every two new jobs in 175 U.S. markets.
It's finding: Cities both big and small are dealing with severe underbuilding.
Where are the biggest housing shortages?
The more severe under-building is happening in major cities, according to experts.
For example, Los Angeles is among the most underproduced housing market in the U.S. with a shortfall of nearly 400,000 homes or about 8.4%, Mike Kingsella, CEO of Up for Growth, a Washington, D.C.-based housing policy research nonprofit, told USA TODAY. In July, Up for Growth released a study tracking more than 800 U.S. housing markets across the country from 2012 to 2019.
And similar to Up for Growth, the National Association of Realtors also cites LA as among the big cities with severe housing shortages. The LA metro area had 247,400 new jobs compared to 11,206 single-family permits, the Evangelou said.
Still, LA is not the more severely under-built.
That distinction belongs to the New York City-Newark and Jersey City, New Jersey metro area. There were nearly 497,000 new jobs compared to 13,229 single-family permits issued in that metro area during that period, Evangelou said.
Other areas that have high housing shortages include the San Francisco-Oakland-Hayward, California area, the Boston-Cambridge-Nashua, Massachusetts area, and the cities of Springfield and Rockford, Illinois.
Will the housing shortage spread?
Once confined to the coasts and the Southwest, the lack of enough housing production to meet demand now affects nearly every state and several major metro areas in America, Kingsella said.
"We're seeing housing underproduction in every corner of the U.S., said Kingsella, whose nonprofit estimates there's a 3.8 million housing shortfall. "And it's certainly not going to get any better as we see interest rates climb while trying to tamp down inflation. This also means we are perversely increasing housing costs."
Can zoning fix the housing shortage?
Cities with single-family housing shortages typically share similar traits, Evangelou said including land-use restrictions that affect building homes.
Kingsella said many cities and states need to change or update zoning laws to allow for more housing. Kingsella said states including California, Oregon and Maine and cities like Austin, Texas, passed laws to end single-family zoning and now allow the construction of more than one home per parcel of land.
Where is the housing market heading?
Despite a slightly rising inventory due primarily to price-weary prospective buyers, supply is expected to remain short for some time to come, said Robert Dietz, chief economist for the National Association of Home Builders.
In a statement last week after the NAHB homebuilders group said homeowner confidence is down for a tenth straight month, Dietz said single-family homebuilding will see a steep decline next year, "as higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers."
The 30-year fixed mortgage rate on Monday was 7.29%, according to Mortgage News Daily, marking the highest 30-year rate in 20 years.
"Nobody saw this coming. We thought maybe a max of 5%, but not a 7% interest rate," said Evangelou, adding that the National Association of Realtors had to readjust its forecast several times this year.
Also, the median sales price for homes in the U.S. was $384,800 in September, an 8.4% spike from the $355,100 price tag in September 2021 as prices climbed in all regions, the association reported.
Assuming a 10% down payment, the monthly mortgage is $1,000 higher than a year ago, Evangelou said.
Housing market first-timer?: From contingency to foreclosure to housing market predictions, what you should know.
Last month, Federal Reserve Chair Jerome Powell said the housing market might need "a correction" to make homes more affordable.
Dietz predicts the Federal Reserve will ease up on interest rates no later than 2024 which will lead to a rebound in the housing industry.
"The market for 2023 will be weak until then," Dietz said. "Home prices will remain high and supply will be low."
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