August 11, 2021

Housing is critical infrastructure

The U.S. Senate approved a $1.2 trillion infrastructure package Aug. 10, a program to start rebuilding the nation's deteriorating roads and bridges, and fund new climate change and broadband initiatives.

Many in the housing industry hope it signals the beginning of a more wide-ranging set of improvements, including the current ongoing cycle of underinvestment and underbuilding that has resulted in a shortage of housing in America.

A recent report released by the National Association of Realtors (NAR) entitled “Housing is Critical Infrastructure" documents a national "underbuilding gap" of around 6 million housing units, which began in 2001.

Like roads and bridges, new housing must be an integral part of any national infrastructure upgrade. It is not a utility that everyone uses, but as a long-term asset, it provides the financial underpinnings for that system.

Just as homeownership directly benefits families with a pathway to long-term prosperity, it also generates tax revenue to support the community.

The simplest answer is to build more houses. But homebuilding is a business that operates on pinpoint budgeting accuracy. Build too much product at your peril.

If demand slips even slightly, it can cost you. So far in 2021, the terrible winter weather, rising building material prices and labor shortages have combined to make this inexact science even more uncertain.

The slower pace of new construction reflects this heightened level of caution, as builders wrestle with whether to ramp up production of affordable units or build bigger homes at higher prices in hopes of offsetting last year’s setbacks.

Even with consistent growth in builder activity, most housing markets can still expect the number of homebuyers to outpace inventory.

Mortgage rates have moderated since June, reacting to concerns about resurgent delta-variant COVID cases and the Federal Reserve’s continuing lukewarm approach to rising inflation.

After falling steadily for a month, demand for mortgages to purchase a home rose slightly in the first week of August. Coupled with a continued increase in refinancing, total mortgage application volume in that period rose 2.8%, according to the Mortgage Bankers Association.

The lower rates also helped existing home sales overcome four months of declines in June, but with supply still tight, the median home price crested over $360,000, a record high.

High home prices continue to be a sticky wicket for an increasing number of potential buyers. With fewer homes available lower price tiers, many people are being priced out of the market, further exerting upward pressure on loan balances.

Recent data show new listings are rising at a quicker pace, helping keep the price gains in check. But this year’s fall buying season is likely to be busier than usual, as seasonal demand patterns continue to shift in the pandemic’s wake.