Of all the ways the pandemic has messed with the order of daily life, one of the more consequential is the jolt it sent through the housing market. Within months of the pandemic setting in, many young people ditched city apartments to move back in with their parents, metropolitan homebuyers snatched up single-family homes in the suburbs, and evictions and foreclosures threatened to push millions of families into deep economic holes that could take years to climb out of.
Some of these impacts were the involuntary reactions of a shocked economy, but others have been years in the making, according to a new report on the state of housing in 2021. Published today by the Harvard University Joint Center for Housing Studies, the annual State of the Nation’s Housing report offers a wide-ranging and data-rich look at just how wild the housing market has gotten, and where it’s likely to go.
The top-line facts are striking. Home buying is up to the highest rate seen since the peak of the housing boom in 2006. The amount of new home building is on pace to surpass the rate seen during that same period. And the number of people unable to either buy a home or spend less than a third of their income on housing is near a historic high. Overall, the pandemic has shifted, and in some cases upended, how homes are being sold and who’s able to buy them.
“This is the aftermath of the recession that was induced by the pandemic,” says Alex Hermann, a senior research analyst at the Joint Center for Housing Studies and one of the lead authors of the report. “We’re seeing home sales activity and housing construction activity that’s typically what you see coming out of recessions.”
In 2020, sales of existing single-family homes rose 5.6%, and sales of new homes rose 20.4%, pushing overall sales to their highest level since 2006. Demand has far outweighed the number of homes that have hit the market.
Hermann says that to an extent this is a result of the pandemic, with many employees able to work from home, wherever that may be, leading some to move out of work-adjacent cities and into more spacious—and often less-expensive—suburbs. But it’s also part of an ongoing demographic trend that the pandemic may have finally kicked into gear: the aging of the millennial generation. “Millennials have been aging into the home-buying years,” Hermann says. “Most of the conversation on millennial home buying has been about the delay we’re seeing in relation to previous generations. Now they’re beginning to catch up.”
The uptick in demand has also revealed just how little supply is available. Between March 2020 and March 2021, the inventory of existing homes for sale shrank by about 30%, and the median period a home sat on the market hit an all-time low of about 18 days.
The core issue, Hermann says, is a home-building industry that has undersupplied the market. “These are issues we’ve had for several years now, and they’re only being made worse by the pandemic,” he says. “But one of the good signs coming out of this is we actually see home builders starting to respond.”
New housing units starting construction in 2020 hit 1.38 million, the highest number since 2006. Hermann says this is likely to continue this year and maybe beyond. “The sales side of the study and what’s happening with construction are all related to the severe inventory shortage we’re seeing.”
This amount of building remains far short of what’s actually needed. According to a report from Freddie Mac, the housing supply at the end of 2020 was still 3.8 million units short of long-term demand. But there has been some progress. “There’s more reason now to be optimistic that home builders will supply some of this demand than there was a year and change ago,” Hermann says.
For now, limited options for buyers and renters mean housing is still unaffordable to a large portion of the U.S. population.
According to the report, the price-to-income ratio for buying a home rose to its highest level since the peak of the housing boom, at a national average of 4.4—meaning it would take 4.4 years’ worth of income for the average American to buy a home. In the early 2000s, that ratio was closer to 3 for most of the country.
For renters, affordability is an even greater concern. The report notes that 46% of renters currently spend more than 30% of their income on housing, and about 24% spend more than half of their income. Hermann says these figures have been trending slightly downward in recent years but the pandemic’s impact on the economy has put more families at risk. Job losses and pandemic-related business closures left many families unable to pay rent over the past year and reliant on a federal eviction moratorium. About 17% of renters were still behind on rent by this spring, Hermann says.
The figures get worse when stratified by race. Almost 30% of Black households, 21% of Hispanic households, and 18% of Asian households were behind on rent during the pandemic, according to the report. “That compares to just 11% of white households,” Hermann says. “You’re seeing pretty pronounced disparities.”
As in home sales, the sign of optimism for renters is the growing supply of new rental units coming on the market. Multifamily buildings, most of which serve renters, have been on a growth spurt since 2014. At a seasonally adjusted annual rate, 2021 is on pace to see about 446,000 new units of multifamily housing, the largest number since 1987.
Though Hermann says the number of renters paying 30% of their income on rent is likely to remain steady for the foreseeable future, more home building in general can help to bring more affordable housing onto the market. Over time, this may help to offset some of the housing challenges intensified by the pandemic. Says Hermann: “Any amount of supply helps.”