Joint Center for Housing Studies of Harvard University

Housing costs are the top issue plaguing both prospective home buyers and renters, according to Harvard University’s Joint Center for Housing Studies (JCHS).

Millions of potential buyers have been priced out of the market by high home prices and interest rates at the same time the number of renters with cost burdens has hit an all-time high. However, a surge in multifamily rental units is helping to slow rent growth, and increasing single-family construction is starting to lift for-sale inventories, both positive tailwinds for the housing sector and households.

Despite the increase in starts, the State of the Nation’s Housing 2024 report from the JCHS suggests the country’s housing challenges are likely “to become more urgent in the year ahead.”

“Addressing these challenges will not be easy,” said Chris Herbert, managing director of the JCHS. “But with concerted efforts by policymakers at all levels of government, together with the private and nonprofit sectors, we have the ability to increase the supply of quality, affordable homes in thriving communities across the United States.”

Home Prices and Attainability

For-sale home prices reached a new all-time high in early 2024, rising at an annual rate of 6.4% in February. Home price growth was widespread, occurring in 97 of the top 100 markets, with the highest increases in the Northeast and Midwest and more muted growth in the South and West. Accounting for these gains, the U.S. home price index is 47% higher than in early 2020, according to the JCHS.

The rise in prices has pushed the median sales price to about five times the median household income, up from around four times the median household income in 2019.

Additionally, consistently high mortgage rates have caused mortgage costs to reach 30-year highs for a median-priced single-family home. In the first quarter of 2024, a household needed to earn $120,000 annually to afford the median-priced home, up from an inflation-adjusted $82,000 in the first quarter of 2021, according to the JCHS.

“Just a few years ago, we would see multiples of income that someone was paying for their house at two times or maybe three times their income. Today we are seeing [multiples of income] in the mid-4s and for the most affordable buyers the mid-5s,” Sheryl Palmer, chairman and CEO of Taylor Morrison, said in a webinar announcing the results of the State of the Nation’s Housing 2024 report. “That is just not sustainable. We know that new housing has had a distinct advantage given our ability to buy down rates. But it feels like the market has been up to most recently unscathed by the higher rates.”

As a result, first-time home buying dropped and the U.S. homeownership rate inched up 10 basis points to 65.9% in 2023, the smallest increase since 2016. In the first quarter of 2024, the Hispanic (49.9%) and Black (46.6%) homeownership rates are significantly lower than that of white households (74%).

“Households of color face other disadvantages, too,” said Daniel McCue, a senior research associate at the JCHS. “Whether it’s the high down payment or the monthly mortgage payments, the costs of buying a home have left homeownership out of reach to all but the most advantaged households.”

In the rental market, although rent growth slowed to just 0.2% year over year in early 2024, rents remain up 26% nationwide since early 2020 and rising in three out of every five markets. Rent declines were contained mostly to markets in the West and South, though rents in these regions were still significantly higher than pre-pandemic levels by an average of 21% and 28%, respectively.

Number of Cost-Burdened Households Reaches Record Levels

Half of all renter households—22.4 million total—spent more than 30% of their income on housing and utilities according to the most recent data in 2022, up 2 million since 2019. The count of cost-burdened households is the highest number on record, according to the JCHS.

“It was encouraging that rent increases have started to stabilize. I think what was not surprising but still alarming is how many people that are still cost burdened,” Priya Jayachandran, CEO of the National Housing Trust, said during the webinar. “That continues to year over year achieve record highs. While supply is marginally increasing and rents are starting to stabilize, it is going to take a long time for those forces alone to satisfy the level of housing cost burdened.”

Middle-income renters making $45,000 to $74,999 saw their cost-burdened shared rise 5.4 percentage points between 2019 and 2022 to 41%. The cost-burdened renter households earning less than $30,000 rose 1.5 percentage points to 83% in 2022.

“Moderate-income, average job households are being cost burdened at record paces. It affirms that our economy is transforming into one in which work doesn’t pay,” Chrystal Kornegay, CEO of MassHousing, said during the webinar. “We’ve got to figure out how to get that balance better. If you are earning $50,000, $60,000, $70,000 and you are cost burdened because you can’t take care of your basic needs, that is a commentary on our economy, not necessarily on just our housing market.”

The count of cost-burdened homeowners also increased from 2019 to 2022, growing by 3 million to 19.7 million. Nearly one-quarter of homeowner households are “stretched worryingly thin,” including 27.4% of homeowners 65 or older.

Multifamily Completions, Starts, and Costs

Multifamily completions rose by 22% in 2023, reaching their highest annual level in more than three decades. As a result, the number of units coming online have outnumbered the increases in new renter households, contributing to cooling rents. Despite rising completions, multifamily starts fell 14% in 2023 to 472,300 units and declined to a 343,000-unit average in the first quarter of 2024.

Just under 6% of units were vacant at the beginning of 2024, higher than last year and the first quarter of 2022. In addition to rising vacancies, multifamily property managers are also facing rising operating costs, which has contributed to lower net operating income. As a result, the JCHS said new multifamily projects are more difficult to finance.

Lower Resale Inventories Boost New-Home Interest

Just 1.1 million homes were available for purchase in March in the resale market, down 34% from March 2019. This represents 3.2 months of supply. Annual home sales dropped 19% in 2023 to a nearly 30-year low. The decrease in sales in 2023 was widespread, down more than 30% in the Midwest, South, Northwest, and West. Lower sales and inventory in the resale market is largely attributed to the lock-in effect, with current homeowners having below-market interest rates and being disincentivized to move.

With fewer existing homes for sale, prospective home buyers continue to turn to new construction as an alternative. New-home sales increased 4% in 2023, representing 15% of all single-family home sales. The pace of single-family home building steadily climbed throughout 2023, rising to an adjusted annualized rate of 1.06 million in the fourth quarter from 828,000 in the first quarter. In 2024, single-family housing starts are maintaining the elevated pace, averaging 1.06 million in the first quarter.

“The resiliency, particularly in the single-family new-construction sector, [is surprising]. If you told me interest rates would go from 3% to north of 7% and we would still be building 1 million single-family homes, I would have said you were crazy,” Herbert said during the webinar. “When you’ve got the vast majority of homeowners sitting on mortgages that are 3% or 4%, there is just nowhere for people to go except to turn to new construction. I think it also points to the strength of demand for homeownership that people are still perceiving in the face of high prices and high interest rates.”

However, construction of smaller, lower-cost, entry-level housing is still soft, according to the JCHS. Additionally, restrictive zoning and regulatory policies, skilled labor shortages, financing limitations, and other challenges are increasing construction costs and reducing the amount of affordable development. In 2023, Montana, Vermont, and Washington passed statewide laws similar to those in California, Maine, and Oregon that preempted local zoning to allow a range of housing types on land previously zoned exclusively for single-family homes.

Household Growth Driven By Millennials

Household growth remained strong despite the headwinds, with 1.7 million households added on net in 2023. The growth was largely driven by millennial homeowner households and Gen Z renter households, according to the JCHS.

Residential mobility rates continued to decline, driven by the sharp decrease in mobility among homeowner households facing disincentives to sell from high interest rates and home prices. Renter households moved slightly more in 2023 than in 2022, but their mobility rate still remained at historically low levels.

According to the most recent data, household wealth increased between 2019 and 2022, driven by large gains among homeowner households. Despite the gains, racial wealth disparities have persisted, with white households having twice the median wealth of Asian or multiracial households and roughly five times the wealth of Hispanic and Black households, according to the JCHS.

Rising Homelessness and Climate Change Threats

The number of people experiencing homelessness reached a record-high 653,100 in 2023. Much of the increase in the number of people experiencing homelessness reflects the end of pandemic protections, high rents, and “the already meager housing safety net,” according to the JCHS. According to the Department of Housing and Urban Development, the number of income-eligible renter households increased by 4.4 million over the period from 2001 to 2021 and the number of assisted households increased by just 910,000, including a record-high 8.5 million “unassisted households that face worst-case housing needs.”

The housing stock is also being challenged by the risk of damage from severe weather events. The number of billion-dollar disasters related to climate change has grown from an annual average of six in the 1990s to 28 in 2023 alone. Approximately 60.5 million housing units were located in areas with at least moderate risk from natural disasters.