Historic. Unprecedented. Crisis. Inflection point.
These descriptors have been used so often in reference to the last couple years of real estate that they have lost much of their meaning. That does not mean, however, it is inaccurate to view the current market with that lens, as nearly every quantitative or qualitative measure seems to support the idea that there are truly unique challenges and opportunities for housing right now.
In its annual “State of the Nation’s Housing” report released Wednesday, The Harvard University Joint Center for Housing Studies (JCHS) did not shy away from any of these words, while at the same time offering some optimistic assessments of how the industry can grow positively out of this uncharted territory.
“It’s truly a remarkable time in housing that has provided no shortage of records and headline worthy stories,” said Dan McCue, a senior researcher at JCHS who worked on the report.
Chris Herbert, managing director of JCHS, said he had recently sat down with housing-industry leaders, and the “general thrust” of their conversation was “I’ve never felt so worried at a time when everything feels so good otherwise.”
“The short-term optimism is because I think there’s still a lot of strength in the market, but ultimately everyone is looking at 2023 to say it is going to be a whole lot slower,” he said. “Which, frankly, if housing prices moderate and rents moderate, that’s not a bad thing.”
Even as the consensus among researchers and industry insiders seems to be that the fractured real estate landscape will slow at least somewhat through this year, exactly who, what and where will be affected is difficult to parse out.
Front and center as far as upcoming challenges is affordability, which has rapidly declined due to spiraling home prices and suddenly spiking mortgage rates. Though many lower or moderate income families were able to snatch up homes earlier in the pandemic, those homes are now out of reach for many, and rising rents have made the problem even more painful.
McCue also highlighted just how much investors have affected affordability in some markets, making up 40% of existing single-family home sales in Atlanta through late 2021 and early 2022, and 28% nationwide during that same period—up from 16% before the pandemic.
“This is really adding to the pressure on prices and to the extreme lack of housing stock,” he said.
The recent jump in mortgage rates has also been a huge factor in short-term affordability, effectively increasing the price to own a home by 27% between December 2021 and April 2022.
At a panel discussing the report, Sarah Saadian, SVP of public policy and field organizing for the National Low Income Housing Coalition, said that stabilizing families who are struggling to find affordable rentals needed to be a big priority, along with adding supply.
“That’s something that congress can do right now,” she said, referencing ongoing negotiations to salvage parts of a large federal reconciliation package that fizzled last year. “That’s really the best opportunity that we have to really have robust federal investments that can address this issue directly.”
On the inventory side, the report noted that housing stock was already at a historic low point before the pandemic-fueled demand surge, and actually hit another new low in January of this year before beginning to edge up. The report and panelists both pointed to local zoning laws as both a cause and potential solution to this issue.
“In order for land use policy to change, I think it’s gotta be at the state, and most likely even below the state level to be effective,” said Ryan Marshall, president and CEO of Atlanta-based homebuilder PulteGroup. “I think the local communities don’t want the state interfering in their business, and states don’t want the federal government interfering in their business…there needs to be a quid pro quo in there.”
The report highlighted Connecticut, a state where 81% of residential land is zoned to require a minimum of one acre to build a home and only 2% of land allows four-unit building, as an example of zoning that can “limit new housing development and, in turn, the access of middle- and lower-income households to some of the more desirable communities in which to live.”
Another issue identified in the report is what one panelists called “a tale of two cities,” where people who got into the market at the right place at the right time are thriving, and everyone else is facing historic struggles to find housing, exacerbated by health and economic impacts of the pandemic.
“Trying to get a toehold in the market has been hard and it’s getting harder,” said Herbert.
Alana McCargo, president of Ginnie Mae, said on the panel that there are “two realities” defining housing stability and wealth right now.
“There are a lot of people who are already homeowners who are seeing this rapid increase in equity, they are doing very very well,” she said. Folks that are trying to buy their first home, families trying to transition out of rental into something more affordable that they could potentially own—the prospects there, the market right there is not working for that demographic. That’s low to moderate income, that’s people of color, who are just not able to take advantage of the system in the way that everyone else is.”
Even for moderate or higher income Black and Hispanic families, significant disparities exist in homeownership, with a 22% gap between Black and white families of comparable incomes, and 15% between Hispanic and white, according to the report.
Looking ahead to the further future—five years to a couple decades—the researchers predicted long-term demographic challenges in housing as Millennials shift out of prime homebuying years, replaced by the smaller Gen Z
“At the same time, the oldest baby boomers will be reaching their 80s, the age when mortality rates start to climb sharply,” the report pointed out. “These trends will weaken the pace of household formations and ultimately curb the growth of housing demand.”
Despite this, most of the panelists said they were at least cautiously optimistic that policy interventions and new investments could overcome the nearer-term issues. Saadian predicated any positive prediction on the still very uncertain path for federal housing reform.
“We had the best opportunity that we would have had for a generation to pass major housing investment and we are on the cusp of losing that opportunity,” she said. “So I’m not as optimistic about that.”
“I think in the short-term things might get a bit worse,” said Herbert. “But I think over the next five years, increasing supply and moderating demand suggest that things could get better.”