High interest rates and housing prices have priced millions of potential buyers out of the housing market, while the number of renters with cost burdens is at an all-time high, according to a new study released by Harvard University’s Joint Center for Housing Studies.
Thankfully, the study found that some relief is in sight as rent growth is slowing due to a surge in new family rental units, and for-sale inventories are growing due to the increase in single-family construction.
Housing costs reached a new all-time high in February, growing at an annual rate of 6.4%, and that’s with higher interest rates. The U.S. home price index has risen almost 50% since early 2020, pushing median sale prices to five times the median household income.
With interest rates on 30-year, fixed-rate mortgages (FRMs) rising to more than 7% in April, and mortgage costs at 30-year highs for median-priced homes, homeownership remains out of reach for many.
Breaking into the market
Not surprisingly, first-time home buyers have stayed away in droves as the study found that that nation’s home ownership rate rose just 0.1% last year to 65.9%, the smallest growth reported since 2016.
Renters don’t have it any easier, as the study found rental market growth has slowed to just 0.2% year-over-year in early 2024, but rents have remained high, currently 26% higher than reported in early 2020, and rising in 60% of the nation’s markets.
These prices have taken their toll on both homeowners and renters. The number of renter households who spent more than 30% of their monthly income on housing and utilities rose to almost half of all renter households: 22.4 million in 2022, the last year measured. It was also two million more than in 2019, an increase of almost 10%, and the highest number on record.
Cost-burdened homeowners grew three million to 19.7 million between 2019 and 2022, with most of the increase coming in households making less than $30,000 a year. Almost 25% of homeowner households are stretched dangerously thin, including 27.4% of elderly homeowners. Homeownership-related costs also grew, with insurance premiums rising an average of 21% from May 2022 to May 2023, and property taxes on the rise as well.
Property owners are feeling stressed
Multifamily completions have cooled the rental market slightly, with completions rising 22% in 2023, the highest annual level in more than 30 years. And operating costs have risen 7.1%, much of that due to the 27.7% nationwide average increase in owners’ insurance premiums. This caused net operating income grown to fall to 2.8% for first quarter 2024, down from 8.1% the previous year. This drop in revenue, plus the rising cost of debt and equity, makes new multifamily projects more difficult to finance.
Add on to this low existing for-sale inventories, with just 1.1 million homes available to buy in March 2024 (a 34% drop from five years ago). Even with the current reduced sales rate, that’s still only a 3.2 months’ supply. Annual home sales were at nearly a 30-year low, dropping 19% in 2023.
The problem is the “lock-in effect,” where current homeowners with below-market interest rates have no reason to move. With less homes for sale, new buyers are turning to new construction and new home sales increased by 4% in 2023. That’s 15% of all single-family home sales, up 3% from two years ago. But restrictive zoning and regulatory policies, not to mention labor shortages and financial limitations, have choked the construction of lower-cost entry-level homes.
The number of homeless has also risen, hitting a record high of 653,100 people in 2023, mostly due to due to the deadly combination of high rents, the end of pandemic protections, and a weak housing safety net. Climate-change-related disasters are also a problem: the number of billion-dollar climate-related disasters that damaged the housing inventory rose from an annual average of six in the 1990s to 28 in 2023. And 60.5 million housing units are located in areas with at least moderate risk from natural disasters.
Click here to read more on the Harvard University’s Joint Center for Housing Studies latest report.
