- Housing prices have reached record highs nationwide, making homeownership unaffordable for the average American.
- Data shows that home prices in 99 percent of key counties are beyond the purchasing power of the average income earner.
- The lack of housing supply is driving up prices, as demand continues to outmatch supply.
- Many Americans are spending more than 30 percent of their gross monthly income on housing costs, which is higher than the recommended limit.
- Morgan Stanley has revised its projections and now expects housing prices to increase by as much as 5 percent in 2023.
- Inflation and rising interest rates have made building or buying a home more expensive.
- The crisis is expected to worsen as demand for housing continues to rise due to population growth.
- Nearly 600,000 people in the United States are currently experiencing homelessness.
- Institutional investors are contributing to price increases by purchasing a significant amount of available housing inventory.
- While home prices and rent may stabilize in the near future, the supply problem will persist, affecting low- and moderate-income families.
- The housing crisis may lead to innovations in zoning, home-building rules, and investment strategies in underdeveloped areas.
The United States is facing a severe housing crisis due to skyrocketing prices and a shortage of available homes. This has made homeownership completely unaffordable for the average American in most parts of the country. According to a recent report from property data provider ATTOM, home prices in 99 percent of key counties have far exceeded the purchasing power of individuals earning just above $70,000 per year.
The demand for homes continues to surpass the supply, which has driven up prices and put a strain on household incomes. Financial planners suggest that individuals should not spend more than 30 percent of their gross monthly income on housing costs, including utilities, taxes, and insurance. However, data from LendingTree reveals that a growing number of Americans are spending more than that. States like Hawaii, California, and New Jersey are the top offenders, followed by New York, Connecticut, Florida, Rhode Island, Oregon, Massachusetts, and Vermont.
Despite previous forecasts that housing prices would decrease, Morgan Stanley has now revised its projections and expects prices to increase by as much as 5 percent in 2023. In certain areas, the price growth has been even more significant, with the greater Los Angeles area experiencing a 24 percent increase in the past 12 months. Other cities with outsized price increases include San Diego, Richmond, Cincinnati, Boston, Rochester, and Pittsburgh.
Factors such as inflation and rising interest rates have contributed to the rising cost of building or buying a home. Unfortunately, borrowing costs are not expected to decrease anytime soon, as the U.S. Federal Reserve has indicated a “higher for longer” approach to interest rates. This situation has frustrated many Americans who missed out on historically low interest rates following the 2008 financial crisis.
The current housing supply crisis can be traced back to the global financial crisis 15 years ago when construction in the U.S. drastically declined, resulting in a shortage of new homes entering the market. The National Association of Realtors estimates that the country is experiencing a housing shortage of between 5.5 million and 6.8 million units, and this gap continues to widen each year.
The high demand for housing is unlikely to decline anytime soon, with the U.S. population projected to reach nearly 390 million by 2050. This means that there has never been a greater need for housing in the country. Unfortunately, the lack of affordable housing options has led to a homelessness crisis, with nearly 600,000 people across the country experiencing homelessness.
Institutional investors, including large banks and investment firms, have exacerbated the problem by purchasing a significant amount of available housing inventory for profit. According to a study by the National Association of Realtors, these investors account for more than 13 percent of all residential real estate purchases.
While there may be a stabilization or slight easing of home prices and rent in the next year, this is more likely due to an economic slowdown and reduced demand rather than a genuine decrease in housing need. Fannie Mae predicts that the supply problem will persist, and low- and moderate-income families will continue to bear the brunt of the housing crisis.
Despite the challenges, the current housing crisis may lead to innovative solutions in the long term. This could include improvements to zoning regulations, more flexible rules for home-building, and increased investment in underdeveloped areas and opportunity zones.
The housing crisis in the United States is reaching critical levels, as home prices continue to soar and the supply remains insufficient. This has left the average American unable to afford a home in most parts of the country. The combination of high demand, inflation, and rising interest rates has created a perfect storm for the housing market. Unless significant changes are made to increase the supply of affordable housing, this crisis will only worsen, leaving more families without a place to call home.