In May, the median home price increased, and this trend might persist for some time. Here’s the reason: the United States continues to experience a housing shortage, as highlighted in a recent report from real estate marketplace Zillow.
Even though there was an increase in homebuilding during the pandemic, the deficit grew from 4.3 million homes in 2021 to 4.5 million in 2022.
The formation of new households outpaced the construction of new homes. In 2022, there were 1.8 million new American families, but only 1.4 million housing units were constructed.
In May, both new home sales and pending home sales declined as potential buyers were deterred by high prices and 7% mortgage rates. However, it’s a straightforward issue of supply and demand. When the demand for homes exceeds the supply, prices inevitably rise.
This imbalance between supply and demand became pronounced during the financial crisis, leading to a housing market crash. Home prices plummeted due to a surge in foreclosures that flooded the market with available houses.
As a result, home builders abruptly halted new construction, and over the next decade, the number of new single-family homes built was roughly half of the annual output seen before the crash.
Millennials, who were graduating from college around that time, didn’t gain much from the influx of foreclosed homes. Before they were ready to purchase homes and start families, investors had already snapped up most of the available properties—a trend that has only intensified in recent years.
When commenting on the report, Orphe Divounguy, senior economist at Zillow said: “The simple fact is there are not enough homes in this country, and that’s pushing homeownership out of reach for too many families. Filling the housing shortage is the long-term answer to making housing more affordable. We are in a big hole, and it is going to take more than the status quo to dig ourselves out of it.”
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