Policy Makers Aim to Solve Shortage of Housing Inventory
Written By: Joel Palmer, Op-Ed Writer
To stay busy, mortgage underwriters and mortgage processors need people to buy houses. For that to happen, the real estate market needs to provide enough inventory to meet demand.
As anybody in the mortgage and real estate industries can attest, that hasn’t been the case lately.
Earlier this month, policy experts from the National Association of Realtors (NAR) joined with officials with the U.S. Department of Housing and Urban Development to discuss what some are calling a housing inventory crisis.
According to a recent NAR report, the U.S. is in the midst of an "underbuilding gap" of around 6 million housing units dating back to 2001.
"The U.S. housing shortage is … the result of more than a decade of severe underbuilding and underinvestment," NAR President Charlie Oppler said during the virtual policy forum. "Reaching the necessary volume will require a major, long-term national commitment … [and] building all types of new housing must be an integral part of any national infrastructure plan.”
President Joe Biden is aiming for what he called a "historic investment" in housing that would generate 2 million additional homes in the U.S. through construction and rehabilitation.
The Neighborhood Homes Investment Act calls for the creation of a new federal tax credit to spur the development and renovation of single-family and 2 to 4-family housing in distressed urban, suburban, and rural neighborhoods. The legislation has been introduced in both the House and Senate and has been included in the American Jobs Plan by the Biden administration.
The administration aims to funnel $213 billion into shoring up the nation’s supply of housing, with a focus on affordable housing and more inclusive neighborhoods. One component of the initiative would provide $20 billion in federal tax credits to construct or rehab about 500,000 homes.
The NAR’s report said policy makers should consider a number of solutions, including shifting local zoning and regulatory environments to develop more residential space and converting unused commercial space.
According to the St. Louis Federal Reserve, since bottoming out in December 2020 and January 2021, the inventory of existing homes for sale has slowly risen, from 1.9 months in the winter to 2.6 in June of this year. That means if there were no more homes put on the market, the existing inventory would last about 2.6 months. This is less than half of the 6-month supply that signifies a market with adequate supply and demand.
NAR reported last week that existing home sales rose 1.4 percent on a seasonally adjusted annual rate from May to June, while the inventory of unsold homes increased 3.3 percent.
"Supply has modestly improved in recent months due to more housing starts and existing homeowners listing their homes, all of which has resulted in an uptick in sales," said Lawrence Yun, NAR's chief economist. "Home sales continue to run at a pace above the rate seen before the pandemic."
In the meantime, mortgage lenders have relied heavily on refinance volume. But this area of business is expected to dry up as mortgage rates increase. Because rates have been so low for such an extended period, most homeowners who would have benefitted from refinancing have already done so.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
