The Housing Dilemma: How The Struggles Of Homeownership Is Affecting America
“Now, more than ever, people want more space. New construction on single-family homes could exceed 1 million (in 2021),” says Danushka Nanayakkara‑Skillington, Associate Vice President, Forecasting and Analysis, at the National Association of Home Builders (NAHB). A promising future for builders in the U.S. But this great news for builders doesn’t come without its challenges. It’s no secret that the U.S. housing market is facing an exacerbating shortage concerning the supply and demand of homes. Within the last decade, investors have turned roughly 5 million homes into rentals, and aging homeowners are choosing to stay in their homes instead of downsizing. Add in the unstable economy Covid-19 has left behind, and you take a long-standing housing issue and escalate it into a full-blown national crisis. With fewer homes for sale today than there have been in the past 40 years, economists, builders, and housing professionals alike are researching the how’s, why’s, and, most importantly, what to do next to tackle this dilemma. While many factors have played into this concerning development, there are a few key factors taking center stage.
Covid-19 VS. The Housing Market
Nowadays, there isn’t a corner you can turn without hearing about COVID-19, and the housing market is no different. The demand for new homes is high. Although COVID-19 has impacted the world in many ways, one of the most noteworthy developments is the exodus of homebuyers from urban living situations. This includes many first-time homebuyers rushing into an undernourished market primarily due to work from home orders. Couple these orders with kids attending school remotely and entire families forced to confine most of their daily life in a singular space; it’s no surprise it has reinvigorated an interest in owning a new home 3x the size of 600 sq ft. apartment. But they aren’t just looking for space. They need FUNCTIONAL space. Homebuyers are looking for new elements and purpose within their new space, details builders are used to providing, and many existing homes may not offer. Rooms such as offices and designated learning areas with impeccable wi-fi connections may supersede the need for previous housing trends that are now outdated. Builders will be facing an additional challenge when it comes to a home’s location, as proximity to essential services within a delivery range are new on homebuyers’ “must-have” list.
Millennials VS. The Housing Market
Of course, millennials are another factor. There are nearly 4.8 million millennials in the U.S., making up around 38% of the homebuyers. With so many new homebuyers driven to the market, homes are seeing multiple bids. “Housing inventory shortages have pushed national home prices considerably higher,” says Joel Kan, Vice President of Economic Forecasting for the Mortgage Bankers Association. The increase in demand drives up pricing for entry-level homebuyers, which is putting homes out of their price range. Despite this lower-level budget, their standards haven’t lowered to match. Many millennials are still entering the market with high hopes and dreams that most first-time homebuyers suffer from. There is also an age demographic that has now lived through two housing crisis and a crash. Therefore, the trust in the market and builders is proving just as slim as their options. Per Diane Olick, CNBC, “New construction also comes at a price premium to existing homes. Builders are starting to pivot to lower-priced products, but the bulk of building continues to be in the move-up and higher end of the market.” This puts builders in a tough space to balance a budget with a benchmark. A challenge riddled with equal levels of exciting opportunity and costly frustration.
Building Materials VS. The Housing Market
The last of the key factors would easily be the supplies themselves. A more immediate challenge lies primarily in the nation’s legislative hands, the quantity of both people and material. The price of building materials such as lumber for framing houses more than doubled during the pandemic, though prices have been coming down from their peaks. The wildfires in the Western U.S. have caused supply shortages. “Builders cite a lack of lots and decreased availability of building materials as headwinds that will limit production,” says Robert Dietz, Chief Economist for the National Association of Home Builders (NAHB). Additionally, the supply of workers in the U.S. in the field of construction has also diminished.
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