The Housing Market Realities & Challenges

A perfect storm is swirling around the housing market with no end in sight. The Capital Region has a more stable housing market than many other areas of the country, so the mantra of real estate being local is relevant.

But the same adverse factors affect this region as they do every real estate market in the United States. The trifecta of high mortgage rates, low inventory and high prices is here to stay for the foreseeable future. A dark cloud hangs over those wishing to purchase homes, those existing homeowners desiring to sell their homes and even real estate investors. That latter category of buyers has seen purchases plunge 45% in the second quarter of this year compared to the same quarter last year.

There is one word to describe the existing scenario– unaffordability. Mortgage rates during the past eighteen months have been aggressively hiked from rates less than three percent to just south of eight percent. The reality is that there is no hope that affordability will be eased in the foreseeable future. The combination of demand and supply for resale and new housing cannot adapt to normal market fluctuations. Ford and Chevrolet can easily make more cars if demand increases. General Mills can quickly make more cereal. These companies and most others do not have to appear before local planning and zoning boards with hat in hand begging to obtain approvals. And the goal of creativity which often involves the use of planned development districts (PDD’s) is not worth the effort. Density, PDD and PUD are dirty words in the political arena.

Decades of local zoning laws favor single family detached homes, which is inherently the most expensive housing to build. Recent supply chain issues have exacerbated this issue. People who participate in community meetings are hardly representative of their community. They vociferously oppose new development in general and especially moderate and low priced housing which requires density.

Politicians for the most part are focused on preserving their jobs rather than addressing the needs of young people, minorities and the vast majority of potential homebuyers for whom unaffordability has gripped the market. Consequently, both the resale market and new construction have not met the demAnd for housing.

Homeowners who would like to sell their homes for various reasons are not doing so because abandoning 3% or 4% mortgages to buy another home no better than their current homes at interest rates over 7% makes no sense. According to realtor. com, inventory in the largest 50 metro areas is 50% below pre-pandemic levels.

High prices due to demand far exceeding supply are here to stay. Newly built housing inventory is low
and expensive resulting from decades of unrealistic, burdensome and restrictive local regulations. This situation cannot be addressed in either the short term or medium term and probably not in the long term. Resale inventory has plunged due to high interest rates. There is zero chance that monetary policy by the Federal Reserve and fiscal policy by Congress will solve the inflation goal of 2% in the foreseeable future, so interest rates will continue at the highest level in twenty years for months, if not years.

Here are a few sobering statistics relating to the resale housing market. A recent Zillow survey indicated that 90% of mortgage holders had a rate below 6%; 80% less than 5%; 33% less than 3%. Therefore, there is no incentive to trade a current mortgage for a new one at rates exceeding 7%; only 20% of mortgage holders with rates below 5% have plans to sell their homes. Those with rates above 5% are twice as likely to sell within the next three years. 52% of homeowners said they wanted to move, but only 14% thought they could do so within their desired time frame.

Housing and neighborhoods play a critical role in individual and community well-being. Where people live – especially children – is a key component of future well being, including physical and mental health, income and mobility. Housing has been neglected as part of the safety net in the United States. That is because the federal government’s role in housing is superseded by the complex structure of its control by local regulations. It is each community for itself and no other; and many members of the thousands of local regulatory bodies which control housing are only concerned about the next election.