When the State of the Nation’s Housing 2022 report was released by Harvard University’s Joint Center for Housing Studies (JCHS) in June, the center noted the housing market appeared to be at an inflection point. After a record-breaking 2021 for the housing market, higher interest rates began to cool the home buying market while the overall economy was facing persistent inflation levels. At the time of the report’s release, the JCHS forecast that the pressure of high housing costs was unlikely to relent for both lower-income households and households of color.

During the “Updates on The State of the Nation’s Housing 2022” webinar, senior researchers Daniel McCue and Alexander Hermann shared how many of the high-level themes of the June report, including the soaring cost of housing, the high hurdles of homeownership, and affordability concerns, have become more exacerbated since the initial release of the report.

The June report maintained a “largely positive” outlook for housing demand due to favorable demographic shifts, low unemployment, and strong wage growth. While unemployment has remained low and wage growth has remained positive, the persistence of inflation and interest rates have softened short-term demand since the publication of the report.

“Mortgage rates were in the process of skyrocketing—they were up 2% year over year—when we put out the report. They’ve continued to hold high and just surged past 6%. That’s really having repercussions for housing costs [that] have not eased since the report,” McCue said on the webinar. “Unemployment has been low and wage growth has remained strong, [meaning consumers] still have some purchasing power and buying power.”

During the webinar, Hermann outlined that housing costs, identified as a major theme in the June report, have continued to increase. The magnitude of rising costs has also not been limited regionally, with 67 of the 100 largest markets tracked by the Federal Housing Finance Agency reporting record annual home price growth at some point since the start of 2021. After reaching peak levels during spring 2022, prices have begun to moderate slightly but still remain significantly higher than pre-pandemic levels, he says.

“Escalating costs combined with rising interest rates continued to deflate demand [in 2022] and made housing less affordable,” Hermann said. “As a result, we have seen signs of normalization and moderation [in pricing]. That easing is likely to continue, but it remains an extraordinarily tight housing market on both the for-sale and rental sides of the market, and these market conditions have a number of implications for households.”

McCue outlined how rising interest rates and median prices have priced out millions of potential renter households and increased the income needed to purchase a median-priced home. In April 2021, a prospective homeowner would have needed an annual income of $79,600 to purchase the national median-priced home ($340,700) with an interest rate of 3.06% paying a 3.5% down payment, according to McCue and the JCHS. In July 2022, a prospective homeowner would have needed an annual income of $115,000 to purchase the new national median-priced home ($403,800) with the new interest rate of 5.41%. According to McCue, the increase in home prices and interest rates from April 2021 to July 2022 priced out approximately 5.2 million renter households who no longer had the required annual income to purchase a median-priced home.

Short-Term Outlook
Hermann and McCue both said inventory levels would be the most important indicator to track in order to see which direction the housing market is headed in the next several months.

“[Inventory levels] have started to turn to an extent, but not to the levels you’d hope they’d be at,” Hermann said. “The other indicator [to watch] is housing production. There’s a lot of new units that we hope will come online, but it is somewhat discouraging to see single-family housing stats start to tumble down to [2019 levels].”