There just aren’t enough homes—and the homes that are available are becoming increasingly unaffordable. That has been the refrain from consumers, advocates and real estate professionals at least since the pandemic, and in many regions, going back years earlier.
Now, though, a joint analysis between the National Association of REALTORS® (NAR) and Realtor®.com is attempting to quantify exactly how large this shortage is, and exactly what price points are scarcest, putting hard data to an issue that has confounded the industry for years
“You may have heard many figures out there—that we need, for example, 5 million homes to build in order to be in a more balanced market,” says Nadia Evangelou, NAR senior economist.
“I think it’s crucial to consider that not everybody can afford to buy the same homes. So this is something unique that this report provides–we quantify how many listings are missing by income group and consequently, by price range.”
What the research unveiled is just how unbalanced the market is, when using this lens. It is not an imbalance between low- and high-price homes, but also very much at that middle level, where households with incomes of $50,000 to $125,000 are shopping.
The country needs to add over 319,000 units affordable to people making $75,000 (roughly the country’s median income), according to the analysis, in order to create a market that “would better serve all households.” These homes would be priced up to $256,000.
“When we compare the middle income buyers with those at the upper income levels, we conclude that our country needs to add at least two homes that are affordable for middle income buyers for every home that is listed up of $680,000,” Evangelou says
While this data is deeply necessary to guide policy, it is less useful to real estate professionals, who are most concerned with their own region or market where incomes and housing prices likely skewed significantly from these national trends. That was an impetus to break down the affordability and inventory challenges across the 100 largest metro areas in the country, Evangelou says, showing that unsurprisingly, different regions are experiencing the inventory and affordability crisis differently.
Starting with the positive, a handful of areas actually have housing stock that closely match the needs of their residents. Of the 10 metros with the least number of missing middle-income homes, eight are in the Midwest, with two in the Northeast.
Among those is Rochester, New York, which was previously identified by Realtor®.com as a “hot” housing market, largely due to its affordability. According to the joint NAR analysis, the city’s middle-income housing almost exactly matches its needs—51% of listings are affordable to people making $75,000 or less, with 54% representing a perfectly “balanced” market.
On the other side, heavily unbalanced metros have (mostly) struggled with the recent correction, even though many were also “hot” markets during the pandemic. One of the most extreme examples of this is Boise, Idaho, where only 2% of listings are currently affordable to the $75,000 and under income level, compared to 50% for a balanced market.
“In Boise, we see price declines, because prices rose very fast in this area and it’s not so affordable, this area, compared to three years ago. So home prices are now declining faster (there) than at the national level,” Evangelou says.
This isn’t true for all unbalanced markets, however. Cape Coral, Florida for instance has only 8% of listings affordable for middle income, and needs 55% for balance. But Florida’s housing market, particularly in the southern parts of the states, has largely defied the correction—though economists have warned that a lack of affordability has long term consequences.
How to address these supply deficits remains a tremendous challenge. Because land use laws are usually enacted at the municipal or county level, many local governments stymie the creation of needed types of housing with restrictive zoning policies. Grass-roots opposition from residents can also contribute to unbalanced housing markets
Perhaps an even more difficult barrier stands on the construction side, as home builders have said it is extremely difficult to finance and build entry-level housing with labor and material costs spiraling up. Although new homes make up a relatively small portion of the market compared to existing homes, in the long term there will almost certainly need to be more affordable construction to meet demand.
The trend of fewer middle-income listings has also grown worse over time. While the analysis only uses data going back five years to 2018, the number of missing homes available to $75,000 income households has more than doubled—-a deficit of 157,730 in 2018 compared to 319,460 today.
Higher-income households are also experiencing a growing deficit. Even for households making $150,000—roughly twice the national median income—the need for homes has grown tremendously, with that bracket now missing 191,210 homes, up from 91,550 in 2018.
What the analysis does not fully capture is how some areas have become extremely exclusive due to both high incomes and high housing costs. Metros like San Jose, California were rated as relatively balanced, despite the fact that median home prices hover around $1 million.
That is because the analysis is based on the income of people living in those areas, and for residents, homes may be priced in their range—even though almost no one else could afford to buy there.
Evangelou says that the analysis—particularly the breakdown by metro—is an extremely important foundation in building a bridge to balanced real estate markets.
“We’re trying to do something new just to quantify the issue that can help with affordability and availability of homes,” she says. “This way, we are able to compute what we need in order to be in a more balanced market—that we want listings to be distributed based on the income distribution for that specific area.”
Read the full report here.