How buying a home is changing in America

A nationwide housing shortage exacerbated by rising inflation recently led the Biden administration to take action, but the housing market landscape has been changing for decades.

Rising home prices, increasing building costs and mortgage rates have intensified a highly competitive market, recently leading nearly a quarter of potential buyers to temporarily end their search for a home after at least three months without success.

Median housing prices have spiked significantly since the onset of the coronavirus pandemic. Prices shot up to $428,700 in the first quarter of 2022 – up from $329,000 in the first quarter of 2020, according to the U.S. Census Bureau. Since 2000, median home prices have increased by 160 percent, all while estimates show there is a shortage of around 1.5 million homes in the U.S.

Average home prices have increased by nearly 16 percent in the past year, with average prices in April jumping to $570,300 from $522,500 in March.

“The rising cost of housing, rooted in a shortage of homes for sale, is perhaps the single most significant barrier to homeownership,” Dennis Shea, Executive Director of the Terwilliger Center for Housing Policy, told Changing America in an email.

“In the last year, 99% of metro areas saw increased home prices- more than any time over the last 20 years. Compounding this problem are insufficient savings for a down payment, limited access to credit, and rising mortgage interest rates,” Shea added.

The latest Housing Trends Report from the National Association of Home Builders (NAHB), a quarterly survey with Morning Consult, shows approximately 67 percent of prospective home buyers spent at least three months house hunting in large part because of the lack of affordable housing.

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Moreover, the number of buyers who said they will postpone their search until next year increased from previous survey findings. Currently, 25 percent of buyers said they will resume their search next year.

Supply chain issues have further intensified the housing crisis, contributing significantly to the increased cost of new homes. Fluctuating lumber prices throughout the pandemic, for example, have caused the price of a new single-family home to increase by an average of $18,600.

“Building material costs are up 19% from a year ago, in less than three months mortgage rates have surged to a 12-year high and based on current affordability conditions, less than 50% of new and existing home sales are affordable for a typical family,” NAHB Chief Economist Robert Dietz said in a statement last week.

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The disparity between income and the average cost of a home has increased drastically over the past six decades. Census Bureau data shows the average cost of a home in 1960 was $11,900 with the median household income sitting at $5,600.

Decades later, median income in the U.S. is around $74,000 per year, compared to median home prices averaging more than $428,000.

There are also generational differences to consider as further NAHB survey data shows a generational drop-off in potential homebuyers.

The number of millennials, those born between 1981 and 1996, planning to purchase a home in the past year fell by 10 percent. This is compared to members of Generation X, Americans born from 1969, who showed a two percent decline.

Around 80 percent of millennials were only able to afford less than half of the available homes on the market, according to the survey.

Still, a majority of millennials say they want to own a home, according to a survey conducted by the Home Improvement Research Institute. Broken down further, enthusiasm for homeownership is higher among younger millennials, 60 percent of whom say they desire to own a home.

“Owning a home is still attractive to younger Americans. There’s just not the same supply of affordable, entry-level homes for this generation of potential homebuyers because they haven’t been built,” Shea said.

“In 2020, only 65,000 entry-level homes were built compared to 420,000 in the late 1970s, a decline of over 80%,” Shea continued. “The lack of supply is increasing the cost to purchase a home and preventing many millennials from entering the homeownership ranks.”

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