Homebuyers are on the sidelines as home prices hit record levels and the supply of home construction and rentals is not keeping up with demand.
Home prices approached all-time highs last month, surpassing $400,000 for the third time on record.
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This is largely due to years of under-construction, economic policies that have kept sellers at home, and a lack of options caused by seasonal market forces.
Rising prices across the market have erupted in starter housing bidding wars, luring some buyers back into the expensive rental market and new homes.
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Let’s take a look at how the housing bottleneck in the United States is being resolved, and what role policymakers can play.
Resolving housing shortages with new housings
“Population and household numbers have been growing steadily for more than a decade, but there are not enough new homes to keep up with that demographic wave,” George Latiou, chief economist at King Current Matters, told The Hill.
“Builders are responding to strong demand by ramping up construction, but it will take months’ worth of new supply to overcome the inventory shortage,” he said.
New home construction fell last month after surging in May
Construction data for the first half of the year show that home builders are trying to fill inventory vacancies with new homes, but they still feel that new home starts were down last month.
Private housing starts fell to a seasonally adjusted annual rate of 1.43 million last month, down 8% from May’s revised figure of more than 1.55 million.
Builders said part of the fall was related to regulatory issues and the tightening policy of the Federal Reserve, which has led to higher mortgage rates.
But Lawrence Yun, chief economist at the National Association of Realtors (NAR), warned buyers that more construction won’t boost supply overnight.
“In the short term, it is really demand fluctuations that will determine the direction of house prices,” Mr. Yoon said.
“But in the long run, it’s really important to keep up with more supply so that house prices don’t skyrocket and become out of reach for most people,” he added.
A rental building where households are formed
On the rental side, economists are seeking record levels of multifamily construction to boost vacancy and keep prices down.
KPMG economist Elena Maleev told The Hill that it could only work if built in areas where households are forming and people are settling down.
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“More supply means lower net prices. But that depends on which part of the country you look at, where you build and whether people migrate and form households there,” Maleev said.
“If there is such a discrepancy, rent prices will fall in some areas, but not in others. It depends on where the buildings are constructed,” she added.
Fed rate hike ends
High mortgage rates continue to push buyers out of the market. Average monthly payments for potential homeowners hit a record $2,656, according to real estate broker Redfin.
The Fed paused its rate hike cycle last month after raising rates 10 times in a row, but is expected to decide to raise rates again at the end of its July policy meeting on Wednesday.
Rising interest rates push home loan demand to monthly low
NAR’s Yun told The Hill he expected a rate hike at this week’s meeting, but noted that the mortgage market would already be adjusting for the hike.
“If the Fed says this could be the last rate hike, mortgage rates could actually come down while pricing in future policy,” Yoon said.
lawmakers in the race
High house prices are making starter homes a target for investors, fueling already fierce competition in an already tight market and complicating things for buyers as well.
Policy makers are taking note. Democratic lawmakers introduced a bill earlier this month that would curb the activity of investors who could push up home prices in the local market.
The Stop Predatory Investments Act, introduced by Sen. Sherrod Brown (D-Ohio) and Ron Wyden (D-Oregon) and others, would limit investors who buy 50 or more single-family rental properties from deducting interest and depreciation on those properties from their taxes.
The bill also seeks to boost housing supply by giving investors incentives to sell single-family rental properties back to homeowners and local nonprofits, as well as allowing owners to continue to receive tax credits on homes financed using the low-income tax credit.
“In too many parts of Ohio, Wall Street-funded mega-investors are buying up homes that may have been in the hands of first-time buyers, raising rents, failing to renovate and threatening families with eviction,” Brown said in a statement.
“Our bill will help keep landlords from driving up local housing prices and put power back in the hands of working families who need a safe, affordable place to live and raise children,” he said.
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