Demand for Homes Soars Amidst Limited Inventory: Housing Market in Need of Revolution
In a recent revelation, industry expert Lawrence Yun, Chief Economist of the National Association of Realtors, shed light on the pressing issue gripping the U.S. housing market. With a staggering population growth of 8 million since 2019, Yun emphasized the critical need for a substantial increase in available homes. Currently, the market grapples with a mere 1.1 million existing homes, significantly down from the 1.8 million reported before the onset of the COVID-19 pandemic. Yun stressed that doubling the existing inventory to 2.2 million could significantly alleviate the crisis, making homeownership feasible for many whose incomes struggle to keep up with soaring housing costs.
Demand Surges, Inventory Dwindles: A Crisis Unfolds
Hannah Jones, an economic research analyst at Realtor.com, spotlighted the widening gap between household formations and single-family home construction. Since 2012, this disparity has ballooned to a staggering 6.5 million homes. Even when multifamily units are factored in, with the majority earmarked for rentals, the gap remains substantial at 2.3 million homes. Jones emphasized that this scarcity forces prospective buyers into cutthroat competition for the few available properties, thereby perpetuating the upward spiral of home prices.
The situation worsens as mortgage rates hover at a daunting 7.63%, a figure unseen in over two decades. Homeowners, reluctant to navigate the market under such conditions, prefer to stay put, exacerbating the scarcity. This dire scenario necessitates urgent measures to boost housing supply and offer relief to aspiring homeowners.
Hope on the Horizon: Strategies for Change
Yun, however, provided a glimmer of hope amidst the crisis. He noted that life-altering events, including expanding families, deaths, divorces, and job changes, could gradually bolster inventory, especially if mortgage rates ease. Additionally, efforts to revamp disused commercial spaces, such as converting vacant office buildings into residential units, are underway. Yet, Yun cautioned that these initiatives, though promising, require time to yield substantial results.
In the immediate future, Yun suggested policy changes that could expedite supply growth. One proposed strategy involves raising the index capital gains exemption for primary homeowners, potentially encouraging more listings. The current exemptions, stagnant for over two decades at $250,000 for single individuals and $500,000 for married couples, are often insufficient in today’s market. Another approach is to incentivize small real estate investors to release properties by reducing capital gains tax, contingent upon selling to a first-time buyer. These policy shifts could inject much-needed momentum into the housing market, offering a ray of hope for prospective homeowners amidst the crisis.
The nation watches with bated breath as experts and policymakers grapple with these challenges, hoping for swift and effective solutions to secure the American dream of homeownership for all.
Download our app MadbuMax on the Apple App Store for the latest news and financial tools. Interested in getting your finances in order do not forget to check Dr. Paul Etienne’s best-seller book on personal finance. To access more resources, tools, and services please click here. Also, do not forget to follow Dr. Etienne on IG or Twitter.