US housing crisis: Why is America facing shortage of homes and will this crunch revive inflation?

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A massive housing crisis in the United States is brewing mostly centered around the unavailability of homes in the largest metros of the country. The shortage of homes in metropolitan regions clearly shows the true picture of a housing crunch in the US, which is a big problem for the federal administration to address in the coming months. The pandemic, inflation and elevated interest rates have all contributed to the growing housing crisis in the US.

Why is US facing a massive housing crisis?

A number of factors such as rising costs of materials, supply-chain issues, labour shortages stemming from Covid-19 pandemic have negatively impacted the housing supply in the US, according to a report in the Bankrate. Though the problem persisted before the pandemic gripped the world, the US has failed to cope the housing demands in line with the continually rising population, the report mentioned.

Another contributing factor that shoots up the housing crisis in the US is the activity of institutional investor, who buy up housing inventory to flip or rent out for profit, the report said. Large investors purchased 14.8 percent of homes on the market in the first quarter of 2024 — a record-high percentage, according to a report from Realtor.com, and that eventually removes those units from the pool of availability for individual buyers.

A new report has also emerged which throws light on how billionaire investors are disrupting the US housing market. According to inequality.org, predatory billionaire investors have bought up an unprecedented share of single-family homes, apartment buildings, and mobile home parks to extract more rents from already economically squeezed residents. As per the report, wealthy investors are acquiring property and holding units vacant.

The overall gauge, which is known as the CPI for all urban consumers, draws from a sample that covers over 90% of the US population and comprises areas with at least 10,000 people. Since the measure is based
on the average consumer, someone whose medical care comprises a larger-than-typical share of their expenses may experience a different rate of inflation than the norm, or a household that uses solar energy
rather than fuel, reported Bloomberg.

The effects of the ripples of the Great Recession, which shook the economy of America in 2007-2008, are still felt today. The Great Recession had a severe impact on housing inventory. On the top of it, the high-interest-rate environment of the past few years has also complicated the matters of housing shortage in the US.

“When rates hit 6 percent, we saw many aspiring homebuyers put their search on hold temporarily,” Shmuel Shayowitz, president and chief lending officer of mortgage lender Approved Funding told Bankrate. “At 7 percent, we saw a bigger tipping point where people exited the market en masse.”

There are signs of more supply entering the market, but it’s not enough to meet high demand. As a result, Freddie Mac predicts home prices will continue to rise.

Will the US housing crisis revive inflation?

The current housing crunch in the US is not going anytime soon. While lowering interest rates may help, but that alone won’t help much to solve this complex problem. ”It could take a while for the US to recover from the current housing shortage,” says Roberts. “Houses take time and capital to build, plus there are other factors at play. Unfortunately, there is no short-term solution.”

The larger question which remains is: Will US housing crisis revive inflation? Mortgage giant Freddie Mac in its latest housing market report stated “while inflationary pressures have been declining, there are potential upside risks to inflation.”

“One area where inflation could resurge is housing inflation in an environment where the fundamental mismatch of supply and demand remains a major challenge for the housing market,” the report warned.

According to a report in the Fortune, increase in inflation could reduce expectations of more relief from the Fed. Recent consumer price data showed that inflation was higher than expected last month, making another substantial rate cut unlikely. Housing costs are a significant part of inflation readings, so any upward pressure in this area could have a big impact on overall data.

As the housing crisis continues, many Americans feel trapped. Research by Edelman Financial Engines shows that over a third of homeowners feel stuck in their homes and unable to move, rising to nearly 50% among those under 50

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