The Housing Market

 The Housing Market

Matt Ciesielczyk

Why is the housing market so terrible right now?

The U.S. housing market in 2022 is experiencing an economic crisis due to the shortage of homes in the United States. Supply and demand tells us that since there is a lack of houses supplied there is more people demanding for houses. If suppliers know there is a shortage they will charge higher prices for their homes because they know people are willing to pay. Housing is a necessary good and for the most part inelastic. Similar to gas, even if the price of houses rise, people are still going to purchase them because they need a place to live.

One reason there is such an extreme shortage of housing is because of the lack of labor to build housing. Covid-19 has made it clear to a lot of people that working from home is a lot better than working in the trades building houses. A lot of people have quit working in construction since they are looking for easier jobs. There are also material shortages that have driven the price of certain key raw materials up drastically. For instance, The Ascent states that, “Lumber prices have increased to a record 154.3% year-over-year increase in the cost of softwood lumber in the month of May based on producer price data.”

A shortage of labor and a shortage of materials has caused a shortage of housing in the U.S. Additionally, not only are houses not being built, but current houses aren’t being sold. There is a lack of production in smaller, more affordable houses. This means that sellers aren’t as likely to take advantage of these high prices. If they sell they won’t be able to downsize because there are no houses to downsize into.

Black Knight, a mortgage data provider, estimated that most families in the U.S. would have to spend 29% of their income to make a mortgage payment on the average American home. That is a 5% increase from 24% in December. It also is the highest level the metric has risen since 2007.

A number of reasons has spiked the cost of buying a home in the United States in recent years. The simple truth is that a shortage of housing is the cause of these increases in cost. The thing a lot of economists have been worrying about is another housing market crash similar to the one in 2008. The graph above shows almost identical signs of inflation in the market in 2007 and 2022.

Do you think the housing market will experience another crash? If so, how soon do you think we would see this crash?

Works Cited

Arnold, Chris. “There's never been such a severe shortage of homes in the U.S. Here's why.” NPR, 29 March 2022, https://www.npr.org/2022/03/29/1089174630/housing-shortage-new-home-construction-supply-chain. Accessed 19 April 2022.

Bieber, Christy. “Fewer New Homes Are Being Constructed Despite High Demand. Here's Why.” The Motley Fool, 4 July 2021, https://www.fool.com/the-ascent/mortgages/articles/fewer-new-homes-are-being-constructed-despite-high-demand-heres-why/. Accessed 19 April 2022.

Farr, Michael K., and Keith B. Davis. “Opinion: Housing prices are still surging, but a bubble doesn't seem likely.” CNBC, 31 March 2022, https://www.cnbc.com/2022/03/31/opinion-housing-prices-are-still-surging-but-a-bubble-doesnt-seem-likely.html. Accessed 19 April 2022.

Lambert, Lance. “The economic shock hitting the housing market is starting to do some damage.” Fortune, 13 April 2022, https://fortune.com/2022/04/13/economic-shock-hitting-housing-market-starting-to-do-damage-mortgage-rates/. Accessed 19 April 2022.

“13 Reasons That Help Explain the US' Labor Shortage, Open Jobs, and Not Enough Workers.” Business Insider, 8 December 2021, https://www.businessinsider.com/potential-reasons-explain-labor-shortage-open-jobs-not-enough-workers-2021-12#health-concerns-and-vaccine-hesitancies-linger-as-the-pandemic-continues-5. Accessed 19 April 2022.

White, Martha C. “How did the housing market turn white-hot? It wasn't just the pandemic.” NBC News, 6 July 2021, https://www.nbcnews.com/business/real-estate/how-did-housing-market-turn-white-hot-it-wasn-t-n1273108. Accessed 19 April 2022.