The housing shortage in the United States isn’t a new concept, having been building and worsening for decades. It’s interesting to talk about the housing shortage in the current context of what’s going on in real estate and the broader economy, though.

During the pandemic, the housing market was red hot, and prices were soaring. People were competing for the limited amounted of homes on the market, and bidding wars became the norm.

Now, the market is cooling, and price increases are slowing, with many saying a housing crash could be around the corner. At the same time, the fact that there is such a housing shortage could mean that a crash doesn’t look like what we might expect. The squeeze on inventory is making this a unique situation.

How Bad is the Housing Shortage?

Rising interest rates and high home prices are slowing the market, but there’s still ongoing demand because of the shortage.

A senior National Association of Realtors senior economist recently told USA Today there appears to be no end to the housing shortage in sight.  

Depending on who’s answering, experts will tell you they believe there is a shortage in the U.S. of anywhere from two to nearly six million newly built homes. The National Association of Realtors believes there’s a shortage of 5.5 million homes.

The NAR uses a housing shortage tracker, which compares supply and demand based on the number of single-family permits for houses issued for every two new jobs in 175 markets across the country.

Cities of all sizes are feeling the effects of the shortage, with the most severe levels of underbuilding occurring in major cities.

According to some organizations, Los Angeles has a deficit of almost 400,000 homes, making it one of the most “underproduced” housing markets. There were 247,000 new jobs in the LA metro compared to permits for 11,206 single-family homes.

New York City and Jersey City are other standouts. There were almost 497,000 new jobs, compared to 13,229 single-family permits issued in the same period.

Other areas with high levels of shortage include Boston-Cambridge-Nashua in Massachusetts and the San Francisco-Oakland-Hayward area of California.

At one point, the housing shortage in the United States seemed confined to the coasts and the southwest area of the country. Now, the lack of housing production affects almost every state and metro area in the U.S.

Are There Solutions?

There are concerns among industry experts that interest rates continuing to climb is going to make the problem worse.

Some are calling on zoning as a solution.

Cities with shortages of single-family houses usually have land-use restrictions affecting the ability to build homes.

Cities like Austin, Texas, and states including California, Maine, and Oregon passed laws ending single-family zoning, and now more than one home can be built on a single parcel of land.

What About the Future?

Even though inventory is going up a little because buyers are concerned about prices and rising interest rates, the National Association of Home Builders chief economist expects the supply will stay short for the foreseeable future. In a state recently, the economist said single-family homebuilding would see a significant decline next year because of higher interest rates and elevated construction costs.

If you assume a down payment of 10%, monthly mortgages are $1,000 higher right now than they were a year ago.

Federal Reserve Chair Jerome Powell spoke recently, saying the housing market may need a correction to improve affordability.

Some analysts anticipate the interest rates will start to ease in 2024, which will reinvigorate the housing market, but until then, it may be weak, which will keep prices high and supply low and likely facilitate an ongoing shortage.