A shortage of housing inventory, a deepening construction labor shortage and high land costs are fueling the crisis, according to Robert Dietz, chief economist for the National Association of Home Builders.
“We’re definitely in the first half of it.” The NAHB/Wells Fargo Housing Opportunity Index shows that the peak of housing affordability was reached in 2012 when 78% of new and existing home sales were affordable for a typical family based on their incomes and current interest rates.
“If rents are high and the rental market is tight, then it becomes harder for those households to save for a down payment and buy a home.” Frank Nothaft, chief economist for CoreLogic, a data analytics company, said lots of people are buying homes, but it has gotten much more financially burdensome for first-time home buyers to buy homes, especially in high-cost markets.
Certainly some of them are doing very well income-wise and can afford to buy, but at the margin, it’s become more challenging.” Nothaft said that if you combine the effect of the rise in home prices with the rise in mortgage rates over the last year, that works out to about an 18% increase in the monthly principal and interest payment to buy the same house today that you could have bought last year with the same amount of down payment.
“The typical family has not had income growth of 18%,” he said.
“Some lucky families had it, but your typical family is not seeing that.” Dietz believes the housing market will continue to have sluggish growth this year in single-family construction and relatively flat apartment construction.
That’s really the pivot point where the housing market is at.” Of course, some affordability issues are more complex, Dietz said, driven by geography in some higher-cost markets.
“If you’re land constrained because you’re up against water or the market is constrained by mountains, you’re really running low on land, that contributes to the factor,” he explained.
“That would include townhouse construction.” Markets that can add housing at an affordable level, particularly entry-level townhouses, are the markets that are going to grow, he said.
“Those are the markets that are going to allow young people to establish roots and buy a home and grow a family,” said Dietz.