Can the U.S. Climb Out of Its ‘Unprecedented’ Housing Crisis?

The 2024 housing market has been the slowest in decades, and the forecast for 2025 doesn’t promise much relief. With rising home prices, high mortgage rates, and a drastic inventory shortage, realtors face a challenging landscape. As we navigate these complexities, the big question is: can the U.S. build its way out of this housing crisis?

A Frozen Housing Market

The U.S. housing market has entered uncharted territory. The National Association of Realtors (NAR) projects that 2024 will see only four million home sales—the slowest pace in three decades. For context, the last time sales were this low was in 1995, when the U.S. population was 22% smaller. Rising home prices and mortgage rates above 7% have stalled transactions, with potential buyers unable to afford homes and potential sellers reluctant to give up their historically low pandemic-era mortgages.

Despite this sluggish market, home prices continue to climb due to limited inventory. According to federal data, the median sale price of a home in the third quarter of 2024 was $420,400, a 32% increase from the start of the pandemic. Renters aren’t faring much better, with nationwide median rents up 20% since 2020. Homelessness has reached record highs, and more Americans are rent-burdened than ever before, spending over a third of their income on housing.

The Core Issue: Housing Supply

At the heart of the crisis lies a supply shortage. Zillow estimates a housing deficit of 4.5 million homes, while Freddie Mac places the figure at 3.7 million. Builders are grappling with higher borrowing, material, and labor costs—lingering effects of the pandemic. In October, new single-family housing starts dropped by 6.9%, further exacerbating the supply issue.

For realtors, this supply crisis creates a double-edged sword. While limited inventory drives up property values, it also reduces transaction opportunities. Potential buyers like Emily Jetmore, a 29-year-old data analyst in Portland, Maine, are left renting despite their desire to purchase. "Renting just feels increasingly like I have no control over where I live," Jetmore said. "I feel trapped."

Economic Headwinds and Policy Challenges

The Federal Reserve’s efforts to curb inflation have ended the era of cheap debt, with mortgage rates hovering around 6.3% to 7%. This has deterred first-time buyers, whose share of home purchases is at its lowest since 1981. Redfin projects a modest 1.9% to 4% rise in home prices for 2025, as demand continues to outpace supply.

Some states and cities are enacting legislation to spur residential development, recognizing that most building rules are set locally. Additionally, the rental market may see relief: one million multifamily units are expected to come online between 2024 and 2025—a 50-year high—potentially stabilizing rents.

Trump Administration’s Potential Impact

President-elect Donald J. Trump has promised to loosen regulations and open federal land for housing construction. These moves could boost supply in the long term. However, potential policy shifts—such as trade tariffs that increase material costs, mass deportations impacting construction labor, or the privatization of Fannie Mae and Freddie Mac—could drive up costs and mortgage rates, creating additional challenges for the housing market.

Dean Baker, senior economist at the Center for Economic and Policy Research, cautioned against expecting significant relief under a Trump administration. “It’s hard to see how [a housing boom] would happen,” he said.

Strategies for Realtors

Realtors must adapt to the current market conditions and prepare for potential shifts. Here are some key strategies:

1. Educate Clients: Help buyers understand how high mortgage rates impact affordability and guide them toward realistic options. For sellers, emphasize the benefits of listing despite market challenges.
2. Advocate for Local Solutions: Partner with municipalities to support zoning changes and development incentives that promote diverse housing options.
3. Stay Informed: Monitor policy changes at the federal and local levels, particularly those affecting mortgage rates, building regulations, and federal housing programs.
4. Focus on Rentals: With more multifamily units coming online, consider expanding services to include rental property management or investment opportunities.
5. Adapt Marketing Strategies: Highlight the value of properties in a tight market, leveraging data to showcase potential investment returns or long-term benefits for buyers.

A Glimmer of Hope

Despite the challenges, there are reasons for cautious optimism. The National Association of Home Builders projects construction of about one million single-family homes in 2025. Additionally, flat rents and increased multifamily housing supply may offer some relief for renters, creating opportunities for realtors to diversify their focus.

The U.S. housing crisis is deep and multifaceted, but realtors play a pivotal role in navigating its complexities. By staying adaptable and proactive, we can help clients make informed decisions and work toward a more balanced market.
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Disclaimer: This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.

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