By 
The Joint Center for Housing Studies (JCHS) at Harvard University recently released The State of the Nation’s Housing 2024 report. This year’s report details some significant challenges confronting the U.S. residential housing market. These include increasing housing costs, record cost burdens for homeowners and low for-sale inventory, which has prompted buyers to seek new construction homes, however unaffordable.
Among other conclusions reached by the JCHS, homelessness is increasing, having reached a record high of 653,100 people in 2023, as is the frequency and severity of climate-change-driven disasters confronting many Americans. Roughly 60.5M housing units are located in an area with at least a moderate natural disaster risk.
Housing Costs Elevated
The 2024 report shows that the lack of affordability in both the for-sale and rental markets is a significant concern. After a brief decline in home prices in 2023, prices increased by 5.6 percent annually and continue to rise this year. In fact, home prices have grown substantially in 97 of the top 100 U.S. markets, with higher increases for the Northeast and Midwest. Further, home insurance premiums rose an average of 21 percent between May 2022 and May 2023 alone, while property taxes and utility payments also increased substantially.
With housing costs at record highs, the number of cost-burdened homeowners who spend more than 30 percent of their income on housing and utilities grew by 3 percent to 19.7 million between 2019 and 2022. More than 23 percent of homeowners are now stretched thin with expenses, including 27.4 percent of homeowners over the age of 65.
Renters do not fare better. While rents have been increasing faster than incomes for decades, the post-pandemic era saw a surge in rental rates, producing an unprecedented affordability crisis. Roughly half of all renter households – 22.4 million – were cost-burdened, according to data from 2022, and this is across all income levels. The cost burden is disproportionately affecting communities of color.
Low Existing Home Inventory Leads More to New Construction
With low existing home inventory, more buyers sought new construction in 2023. According to the JCHS report, just 1.1 million homes were available for purchase in March 2024, down from 1.7 million in 2019. This is just 3.2 months of supply, even with the reduced sales rate. Also, annual existing home sales dropped 19 percent to 4.1 million in 2023, nearly a 30-year low. This is primarily driven by current homeowners with low interest rates, who are disincentivized to move, given the current 30-year mortgage interest rate hovers at around 7 percent.
With these conditions impacting the market, homebuilders are increasingly constructing smaller, lower-cost options for entry-level homebuyers. Still, challenges remain for builders, including restrictive zoning, lack of skilled labor, regulatory policies, and financing limitations.
In fact, because of the housing shortage, state and local governments are removing supply barriers and taking actions such as changing zoning to allow for a range of housing types on land previously zoned exclusively for single-family homes. Yet, even with these policy changes, the report says homeownership is increasingly out of reach for many Americans. As a result, the U.S. homeownership rate across all age groups inched up just 0.1 percentage points in 2023 to 65.9 percent, the smallest increase since 2016.
The Growing Threat of Climate Change
The Joint Center points out the increasing risk of climate change to the U.S. housing market, noting that the number of billion-dollar disasters related to climate change has grown from an annual average of 3 in the 1980s to 28 in 2023, according to the Federal Emergency Management Agency (FEMA). The report notes that an effective response to those risks requires both structural adaptations and financial resources to increase household, building, and land resiliency and reduce future risks by shrinking the residential sector’s carbon footprint.
Outlook
The JCHS report concludes that housing costs will likely remain high on the for-sale side. On the rental side, there may be some affordability gains in the near term, as nearly 1 million new multifamily units are currently under construction.
The nation’s shifting demographics will also impact the housing market’s future, particularly on the demand side in the short term. While Gen Zers and Millennials form new households, demand will be vital. However, native-born population growth will soon turn negative as baby boomer mortality rates overtake birth rates.
Other housing challenges are also likely to become more urgent, including increasing the housing stock’s resiliency to climate change and reducing its carbon footprint.
To access the full report, click here.