Since my divorce, I’ve been searching for an affordable home. I’m not looking for anything extravagant or brand new; I simply need a comfortable space for myself and my three kids. Ideally, I want a three-bedroom house with at least one and a half bathrooms because, as it seems, whenever one child needs to go, they all suddenly have to as well. Unfortunately, finding this ideal home within my budget has proven to be a daunting task. The reality is, there’s a significant shortage of affordable homes, and many others are in the same boat. Here’s what’s going on.
The pandemic has brought attention to the chaotic housing market, but the issues began to emerge as early as 2018, as noted by mortgage lender Freddie Mac. The decline in available homes has been a continuous trend since the 1980s. Back then, around 40% of new constructions were considered affordable or entry-level homes—typically about 1,400 square feet with two to three bedrooms. By 2020, this figure plummeted to just 7%. In the next decade, 45 million Americans will reach the average age of first-time homebuyers (34-44) and will be competing with the 41.8 million individuals currently searching for their starter homes.
The market is currently short by 4 million homes to meet demand, and unless there is a shift in new construction trends, this gap is likely to widen.
What’s Causing the Shortage?
The pandemic has highlighted the ongoing labor shortages in the construction industry. A survey by the Associated General Contractors of America found that 81% of construction firms reported challenges due to a lack of skilled workers. Builders face additional obstacles, including stricter land use and zoning regulations, a scarcity of developable land in populated areas, rising land values, and soaring costs of building materials.
The pandemic worsened these issues, causing lumber prices to rise by over 150% and extending wait times for essential supplies. Although some improvements are being seen, it remains cost-prohibitive for builders to construct affordable homes, especially when the expenses surpass what first-time homeowners can realistically afford.
The Financial Landscape
According to the Federal Housing Agency, the median price per acre of land for single-family homes jumped from $159,800 in 2012 to $203,200 in 2017. Builders must find ways to recoup these costs while also managing building material expenses, leaving buyers to bear the brunt of inflated home prices.
Record-low mortgage rates are encouraging more buyers to enter the market, which keeps purchasing power strong despite rising home prices. Financing a home—if you can manage the down payment and outbid others—has never been cheaper. This situation has drawn even more people into an already strained housing market. With many continuing to work from home, there’s an increasing demand for spacious living environments that can accommodate home offices and family life.
As home sales surged, inventory remained significantly below demand. The basic principle of supply and demand has driven home costs beyond their actual value, resulting in bidding wars and buyers waiving inspections to secure properties. I’ve heard countless stories from people who lost out on homes because someone could pay cash, which isn’t an option for me.
Is There a Glimmer of Hope?
In my area, home prices are gradually decreasing, but inventory remains low and exceeds my budget. I’m trying to be patient, but perseverance only goes so far. I’m collaborating with a community land trust that assists people in finding affordable homes, yet in the nine months I’ve been involved, I haven’t found anything that meets my needs. Some reports suggest that inventory may improve by the end of 2021 and into 2022, but timing and a bit of luck will play a crucial role in my search.
Lawrence Yun, chief economist for the National Association of Realtors, states that as more COVID-19 vaccinations are administered, we should see an increase in market inventory as potential sellers feel more comfortable listing their homes. The reduction in homeowners in mortgage forbearance will also contribute to a more favorable inventory situation.
Ultimately, genuine relief and hope for millions of us will rely on the construction of new, affordable housing, but that is still years away. The demand for entry-level homes will likely remain high for the foreseeable future.
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