The American Housing Market: Why Fewer New Homes are being Built

Key Takeaways

• 19% fewer homes were started in June than in February 2022
• Interest rates are cooling the market from white-hot levels
• Municipalities can sometimes be big obstacles to creating new housing

Homebuilders have a problem: There are lots of properties to buy, but not enough people who want to buy them. Yet America has a housing shortage. How can both things be true? Why aren’t homebuilders building more homes if there’s such great demand?

Consider the dilemma of the homebuilder:

• Finding workers has been very difficult.
• Lumber prices skyrocketed during the peak of COVID.
• The supply chain crisis has made obtaining everything from electrical boxes to refrigerators extremely difficult and slow.

Homebuilding slowdown

Homebuilders broke ground on 982,000 single-family homes across the nation in June. That’s down 19% since February of this year. Why are they pulling back?

Two words: Interest rates.

Rates on 30-year conventional mortgages have increased recently. That’s an indication that the booming housing market is correcting, according to experts. Those increases have tacked on hundreds of dollars to a typical monthly payment, which has caused scores of potential buyers to pull back. The bottom line: a slowdown is underway.

There are plenty of high-end homes for the taking. For middle- and lower-income families, the shortage is real. Folks already struggling to come up with a 20% down payment to avoid private mortgage insurance find themselves looking at interest rates that are putting homes out of reach. Combine that with rising prices for fuel and groceries and a battered stock market, and it adds up to this: The housing market is in horrible shape, and some data suggests we’re headed for a housing recession.

The other problem: NIMBY-ism

Where new housing is needed the most, it’s often very difficult to build, stymied by a gauntlet of municipal zoning laws and regulations. The rising cost of development can make builders give up.

And there’s the NIMBY.

An acronym for not in my backyard, NIMBY-ism is an issue across the country as existing homeowners protest changes to their communities. They complain about traffic. They bemoan new development blocking existing scenic views. They fear impacts to their property taxes and property values. At its darkest, there’s fearmongering about people of color and Section 8 neighbors moving in. Many homeowners in the NIMBY mindset are willing to play the long game, willing to fight off new developments for years. They often win.

Finding solutions

Solutions are possible. There’s a conversation happening about social housing, a revival of what used to be called housing projects, but reimagined for the 21st century.

Remedies for our housing woes are largely political, however, so progress can be glacial.

With all the doom and gloom we’re reading and hearing about, there still are deals to be made. There are still excellent properties to purchase. There are still thoughtful people willing to work with buyers. Given all the volatility in the market, though, the waters will be tougher to navigate in the near term.

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