Pandemic Exacerbates Already Severe U.S. Housing Shortage

Americans in the market for housing are facing a shortage of affordable rental properties to choose from. Scarcity and affordability were in place before 2020, but the coronavirus pandemic seems to have tightened residential markets even more.

On the for-sale side, demand has spiked as buyers look to take advantage of low interest rates and see the importance of owning more space, now that more people are working remotely and going to school at home. Those factors have put pressure on inventories of houses and helped drive prices upward, The Wall Street Journal reports.

In July, according to the National Association of Realtors, pending home sales spiked 5.9% compared with June, as measured by the organization's Pending Home Sales Index. Compared with a year ago, pending home sales were up 15.5%. Pent-up demand was part of the reason, NAR said, as buyers were largely unable to buy in the spring because of early pandemic restrictions.

The number of sales that closed in July was up even more, the organization reported: 24.7% higher than in June, as people returned to the market after the pause in April and May. Sales were also up 8.7% in June compared with the same month in 2019.

As sales have risen, so have prices, the report found. The median existing-home price nationwide in July was $304,100, up 8.5% from July 2019. Prices were up in markets across the country. 

Another indication of the hotness of the for-sale market is the speed with which properties on the market sell. As of the week ending Sept. 12, Zillow reports, a listing's average time on the market was 14 days, exactly half as many as the 28 days houses typically spent on the market a year ago.

Compared with the same month last year, U.S. home values were up 5.1% in August 2020, according to Zillow (including both existing and new). That is the largest annual rise since March 2019. Compared with July 2020, home prices were up 0.7%, Zillow noted, which is the largest monthly rise in nearly seven years. 

Metros with the highest annual increases in home values were Phoenix (up 10.5%), San Jose (up 10.3%) and Seattle (up 9.2%), Zillow reports, but almost every major market, or 48 of the top 50, saw prices increase. 

"American home shoppers faced an historic shortage of listings to choose from this summer, and that scarcity is now reflected in rapidly appreciating home values," Zillow economist Jeff Tucker said in a statement. "The shortage of inventory should keep housing markets unusually tilted in sellers' favor this autumn."

In the rental housing market, the shortage at the affordable end of the spectrum is particularly acute, now that income is down for many households facing pandemic-related job insecurity. For renter households earning 50% of median renter income, less than 10% of all rental units are affordable, according to research released in August by Freddie Mac.

Using median renter income as a metric more clearly shows the seriousness of the rental housing shortage, according to Freddie Mac, rather than median household income, which includes people not in the market for housing because they already own theirs.

“Rental affordability continues to be a major issue as demand remains high and supply of affordable housing is both insufficient and more likely to decline than it is to grow,” Freddie Mac Vice President of Multifamily Research and Modeling Steve Guggenmos said in a statement.

Rental housing is tight at the affordable end even though rents are falling in a number of markets, such as San Francisco and New York. Those drops are typically for market-rate apartments, which were already out of reach for many renters.