The Housing Crisis Isn't Going Away

It's unfair to the younger generations. And it's not going to get better anytime soon...

U.S. home prices are near all-time highs. Affordability – or the lack of it – has been the rallying cry among consumers for years.

But the housing market doesn't change just because folks are upset. It responds to supply and demand. For prices to come down, we need more homes... plain and simple.

Instead, U.S. housing starts are at their lowest level in years. That's not how you solve a housing crisis. And it means home prices are likely to stay elevated.

Housing Starts Fall to a Six-Year Low

The housing crisis is real... But affordability is actually improving. We're quickly approaching a "normal" range compared with history.

It doesn't feel like it, of course. That's because in the wake of the COVID-19 pandemic, we went from one of the best affordability levels on record to one of the worst... in just one year.

It was a painful transition. Folks still haven't woken up to how the market has changed since then.

Regardless, prices are higher than buyers want. And the way to make housing more affordable is to build more of it... Obvious, perhaps, but true. We simply need more homes.

Unfortunately, homebuilding isn't picking up – it's slowing down. We can see it by looking at housing starts...

The chart below tracks the number of new construction projects on housing units. That number has been trending lower. And it recently dropped to a multiyear low. Take a look...

Earlier this year, the trend seemed to be reversing. Housing starts hit a two-year high in March... But they've collapsed since then. The May figure was the lowest monthly total since 2020.

The fall in housing starts isn't surprising. Demand is low – and it has been for years. That's why companies aren't building new homes.

The bad news is that this is the exact opposite of what we need. We're millions of homes short in the U.S. That shortage is a big reason why home prices are so high... And high prices weigh on affordability.

So, the younger generations could be stuck with this issue for a long time. That's the unfortunate reality of a problem that's easy to identify but hard to solve.

However, if you already own a home, the value of that asset is safe, at least. Home prices might seem higher than they should be, but supply and demand always win.

And with housing starts hitting lows, home prices aren't coming down anytime soon.

Good investing,

Brett Eversole