Five years ago, when a real estate agent advised my wife and me to make an offer on a house we had seen only once − at night − and were unsure about, I thought she was being ridiculous. Today, I concede that she was being pragmatic because buyers significantly outnumbered sellers.
We bought another home before it was listed, happening to spot the “Coming Soon” sign out front. That was my preview of the housing shortage. Then COVID-19 supercharged the national housing crisis.
You may know the rule of thumb not to spend more than 30% of your income on housing. Redfin calculated that only 15.5% of homes bought last year would have a mortgage costing less than 30% of local median income, a record well below the pre-pandemic norm.
A new report from Harvard’s Joint Center for Housing Studies found that in 2022, a record half of U.S. renters were “cost burdened,” spending more than 30% of their income on rent and utilities. About 27% of renter households spent more than half of their income on housing.
The root cause of this financial hardship is a shortage of homes, although some housing advocates question or deny that reality. But the housing shortage is a literal shortage. We can see it from various pieces of evidence.
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Housing price index is at near record high
America built far fewer homes in recent years. U.S. private home construction crashed before the 2008 mortgage crisis (measured in total units). Only in late 2021 did it climb back up to its pre-Great Recession peak.
Homebuilding is rebounding, but we have a lot of catching up to do. The Case-Shiller housing price index sits near an all-time high.
The median age of first-time homebuyers also is near a record high, at 35.
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Investment firms have owned many multifamily buildings for decades. They now are buying a significant number of houses because they expect a continued shortage to boost those properties’ values.
Economists argue about inflation and minimum wage laws, but they overwhelmingly agree we have a housing shortage. “Place the Blame Where It Belongs,” declared a recent Urban Institute report on the shortage. Economists are still figuring out how to measure it, but various estimates place the national shortage of homes in a broad range, from 4 million to 20 million.
Rising rents trigger increase in people without stable housing
It was a moment, not a number, that finally convinced me of the housing shortage. I started an all-volunteer housing advocacy group in 2021 and about a year later was invited to tour a homeless shelter. A staff member explained that rising rents had increased the local population without stable housing, and that the shelter struggled to find available homes to place its clients in.
I have since heard the same thing from staff at other shelters in my state. I have also heard chilling stories about residents of my city living in unsafe, overcrowded conditions.
Low supply lets landlords jack up rents. It prevents people from leaving abusive partners. It forces California college students to sleep in their cars.
The housing shortage is all too real. Only building many more homes will make housing affordable again.
Luca Gattoni-Celli is a Young Voices contributor and the founder of YIMBYs of Northern Virginia. Follow him on X @TheGattoniCelli
One of Americans’ biggest pet peeves – high inflation – seemed to be in retreat the past few months but the latest report revealed an unwelcome flare-up in January. Will a lesser-known price measure that the Federal Reserve follows more closely deliver better news?
Consumer confidence, meanwhile, has been recovering from some inflation-induced blahs. Will the February report highlight more good vibes or another mood swing?
And home prices have been in the doldrums because of high mortgage rates — although borrowing costs have eased a bit lately. Could that bear fruit in the latest reading on home prices?
This week’s economic news should help answer those and other questions that matter to your wallet. Here’s a sneak peek:
Are companies spending money?
30,000-foot view: Companies have been cautious about buying more factory machines, computers and other equipment recently because of high interest rates that make borrowing more expensive.
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But new orders for such long-lasting goods rose in November and December. Businesses have been encouraged by fading recession fears and the Federal Reserve’s expected interest rate cuts later this year, says Nomura economist Aichi Amemiya.
He estimates a key measure that excludes aircraft and defense-related items – a proxy for business investment – will show flat or slightly higher purchases in January when the Commerce Department releases the data on Tuesday.
You should care because: More capital spending means more growth for the economy and, generally, more hiring. After all, new machines typically need workers to run them.
Are house prices in the US dropping?
For home sellers, the past six months or so have been frustrating.
30,000-foot view: Monthly increases in home prices have steadily slowed since the middle of last year as rising mortgage rates discouraged housing sales. In November, the average home price in major metro areas fell for the first time in 10 months (before seasonal adjustments), according to the S&P CoreLogic Case-Shiller Home Price Index of 20 cities.
Nomura expects more of the same in S&P’s release of the December figures on Tuesday.
You should care because: Mortgage rates generally have dipped since late last year and that should lift home sales and prices in the months ahead, Nomura says.
Is consumer confidence high right now?
Americans have been feeling better about their finances and the economy lately but that could change quickly if the outlook darkens.
30,000-foot view: In January, consumer confidence reached the highest level since late 2021 on easing inflation, strong job growth, rising stock prices and the prospect of lower interest rates. Economists surveyed by Bloomberg estimate the Conference Board will announce Tuesday that confidence held steady in February while Nomura expects a slight uptick.
You should care because: The measure affects household spending and the economy.
Is US inflation cooling down?
Inflation seemed to be on a steady downward path until the Labor Department’s consumer price index (CPI) raised concerns earlier this month.
A core measure of the CPI, which excludes volatile food and energy items, rose a sharp 0.4% in January, keeping the annual increase at 3.9%. That led some economists to push out their forecast for the Federal Reserve’s first interest rate cut from May to a bit later this year.
30,000-foot view: On Thursday, the Commerce Department releases a different inflation gauge called the personal consumption expenditures (PCE) price index. The Fed keeps a closer eye on the core PCE index than the core CPI and economists expect a similar 0.4% rise in that PCE reading as another jump in rent as well as services such as health care, finance and insurance offsets roughly flat goods prices, Barclays says.
You should care because: That rise would be the largest monthly increase in a year, Nomura notes, but would still nudge down the annual increase from 2.9% to 2.8%, a bit closer to the Fed’s 2% goal. And economists still expect inflation to continue to drop in the coming months as rent increases slow.
The PCE report is also expected to show that consumer spending increased a modest 0.2% last month, well below December’s 0.7% leap.
Is US manufacturing in a recession?
The economy has been strong and resilient. But the nation’s manufacturers have barely felt it.
30,000-foot view: U.S. manufacturing activity has contracted for 15 straight months as consumers have shifted their spending from goods to services since the pandemic and businesses have grappled with high interest rates and bloated inventories.
You should care because: On Friday, the Institute for Supply Management is expected to announce that factory activity shrank yet again in February but the total activity level – which includes new orders, production, jobs and other elements – was likely the highest since October 2022. Nomura anticipates an even bigger improvement to just below expansion territory.
Investing in Maryland is a safe bet, according to a recently released Maryland Economic Development Association study.
The January report, completed with the help of Salisbury University’s Business Economic and Community Outreach Network, found every dollar invested in county economic development operations in Maryland yielded an estimated $9.17 in return.
“This is a wonderful opportunity to showcase the impact of the economic development community in the state of Maryland,” said John Hickman, director of BEACON.
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The study was conducted to better quantify the impact of economic development efforts using empirical data to demonstrate the importance and value of economic development programs. The data, compiled by BEACON’s research team, focused on jobs added or retained, as reported by county economic development offices, and the funding invested by each county to support economic development operations.
Analysis of the 2022 and 2023 data supplied by participating county economic development offices, modeled with IMPLAN, a regional economic analysis software application, revealed varying returns on investment across communities. The estimated statewide average return for 2022 and 2023 demonstrated the generated state and local tax revenue for each dollar invested.
“As the trade association for professionals in the state at every level, it’s our partners that contribute to economic development. It includes housing and community (investment) and workforce development coming together to enhance an economy. We wanted to quantify it in terms of dollar amount on that return on investment,” said Lawrence Twele, president and founder of Eastport Partners and members of the association for over 20 years.
Forming an Eastern Shore economic forecast
Anticipating the economic needs of a growing Eastern Shore means taking stock of its assets. In Wicomico County, that starts with recognizing that much of its success boils down to location.
“This study gives a sense of investment on a broad basis that is relayed to the legislative bodies that need this data,” said David Ryan, executive director of Salisbury Wicomico Economic Development. “Our major assets are two highways intersecting in Salisbury, freight rail networks, and the Wicomico River that brings agricultural products and fuel and building aggregates. That moves the supply chain in the county, and we still have the regional airport.”
According to Ryan, the Salisbury Regional Airport accounts for an estimated $150 million in return on investment and economic impact.
Training programs like those for aviation maintenance technicians are key in addressing the shortage in labor for the next 20 years. The creation of high-paying job also draws a workforce that will need additional industries like housing, utilities and other infrastructure. More importantly, it adds to a healthy tax base.
“(This) is an opportunity to grow the aviation and aeronautics sector. Our region’s economy includes agriculture, healthcare, higher education and manufacturing. We can add other sectors to that, and not every community has an airport,” Ryan said.
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Post-pandemic, ‘an influx of interest in Somerset County’
Daniel Thompson, executive director of Somerset County Economic Development, echoed concerns over labor shortages and noted the pandemic came with its own economic challenges and surprises.
“As a rural area with a smaller population, our workforce tends to come from outside the county to sustain business growth,” Thompson said. “Before the pandemic, we were competing with the more metropolitan areas across the state, but during, we actually saw an influx of interest in Somerset County. Many people were stepping back from their business model and started looking into rural parts of Maryland.”
That coincided with aggressive market positioning to bring natural gas and its related infrastructure into the county. County commissioners also doubled down on their investment into broadband internet.
“We had incentives like enterprise and opportunity zones, and we marketed them. Things like quality of service and relationships with the contacts were important. It was more than just getting businesses there, it was getting them there for the long haul,” Thompson said.
Concerns over cyclical troubles in business were tempered by assurances the county would continue to support investors’ business goals.
Investments pay off with jobs, tax revenue and more
“The impacts of these investments is that for every project the county worked on, it retained jobs, it attracted new ones, and those jobs and the income taxes they create and taxes those businesses paid all come back as revenue. This was a way of telling the story of that return,” Twele said.
The association behind the study, in cooperation with BEACON, is a nonprofit organization of economic development professionals. Established in 1961, MEDA members promote the economic well-being of Maryland by working to improve the state’s business climate and the professionalism of those in the field of economic development.
MEDA’s membership includes economic development practitioners employed by the government, businesses, and chambers of commerce as well as other professionals with an interest in the economy of Maryland.
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