What Housing Recovery?

 The Mortgage Corner

“Existing-home sales increased by 1.7% month-over-month in February, according to the National Association of REALTORS® Existing-Home Sales report. The report provides the real estate ecosystem—including agents, homebuyers and sellers—with data on the level of home sales, price, and inventory.” NAR

FRED30yrmortgage

It’s been months since I last wrote about the housing market, and why it’s  had such a slow recovery. FRED’s 30-year fixed mortgage graph tells us why, which is the reason we have a housing shortage.

The 30-year average fixed rate mortgage was a level 3% until 2022 during the COVID-19 pandemic until the Fed raised interest rates to combat rising inflation. It’s 6.0% today, after dipping very briefly to 5.98% last month.

It's this high today because Trump’s Iran war is costing $1 billion per day on borrowed money due to his Big Beautiful Tax Bill, which will add to the current $39 trillion in federal debt.

Are we seeing a housing revival with the slight uptick in existing home sales? Hope springs eternal, as the saying goes. Sales have hovered around 4 million residential units since the busted housing bubble and 2008-09 Great Recession. There has never been enough to satisfy the demand since then, because the busted housing bubble restricted new home building for almost 10 years and 30-year fixed rate mortgages have hovered above 6% ever since, per the FRED graph.

But, “Housing affordability is improving, and consumers are responding,” said NAR Chief Economist Dr. Lawrence Yun. “Still, there is a long way to go to return to pre-pandemic levels of transaction activity. There are more than 6 million more jobs than in 2019, yet home sales per year are down by one million.”

There isn’t much of a housing supply inventory, and builders aren’t cooperating now with less than a four-month supply of existing home inventory on the market at the current slow sales rate.

This is while privately-owned housing starts in October were punk, at just a seasonally adjusted annual rate of 1,246,000. It is 4.6 percent below the revised September estimate of 1,306,000 and is 7.8 percent below the October 2024 rate of 1,352,000, says Calculated Risk.

Unaffordably high mortgage rates are one reason for the construction shortage, but Trump’s tariffs on building materials are also adding to construction costs.

Higher import taxes on steel, copper, lumber and other materials are lifting construction prices and interrupting some jobs. Immigration enforcement is worsening worker shortages and delaying projects.

“We get so many things thrown at us in the construction industry,” said Tony Rader, the chief relationship officer at National Roofing Partners, a commercial roofing company in Coppell, Texas. “It just seems like every time we turn around, we’ve got something else to fight.”

So, we must throw in the costs of empire building because Republicans are so fond of waging wars. It’s not only the Federal Reserve keeping rates high, but also the huge federal debt has been boosting bond yields. It is the reason we still have a housing shortage of 2-5 million units, depending on who you ask, since the Great Recession and housing bubble.

Harlan Green © 2025

Follow Harlan Green on: https://twitter.com/HarlanGreen

Why the Housing Shortage?

 The Mortgage Corner

How can we recover from our housing shortage that has resulted in record homelessness and a lack of affordability for many young households?

FREDhousingstarts

There haven’t been enough homes built to satisfy prospective home buyers for a decade—from the end of the housing bubble until 2020, thanks to the oversupply generated during housing bubble and Great Recession, as can be seen in the FRED graph of housing construction dating from 2000 (large gray bar is the Great Recession).

Builders are still not building enough homes to keep up with population growth while builder confidence remains stagnant in the face of weaker homebuyer demand. August housing starts declined 8.5% month-over-month to a seasonally adjusted annual rate of 1.307 million units, according to the latest data released by the U.S. Census Bureau.

Builders had been constructing 1.6 to over 2 million new housing units until January 2006 at the height of the housing bubble because they thought they had prospective homebuyers with adequate incomes and credit that could afford the purchases.

But lax regulations and supervision during the GW Bush administration by the U.S. Treasury and Alan Greenspan’s Federal Reserve allowed for anyone to qualify to buy a home with so-called liar loans that had artificially low start rates. The housing bubble burst when Greenspan finally began to raise interest rates to combat the rising inflation, which caused a massive defaulting of the liar loans.

More than one million new households per year are still being formed but it wasn’t until 2013 that more than one million new units were being built again. And 8.7 million jobs were lost during the Great Recession, compounding the problem of affordability.

In a word, builders must build more affordable homes. At one time 40% of existing-home sales were entry-level, first-time homebuyers that could afford to buy a home. It’s just 28% in the latest sales report by the National Association of Realtors (NAR).

Existing-home sales remained essentially the same in August, ticking down by 0.2% from July, according to the National Association of REALTORS® Existing-Home Sales Report. Existing-home sales are also hurting because of the lack of affordable financing with the 30-year fixed rate mortgage still above 6%.

"Record-high housing wealth and a record-high stock market will help current homeowners trade up and benefit the upper end of the market. However, sales of affordable homes are constrained by the lack of inventory," Yun added. "The Midwest was the best-performing region last month, primarily due to relatively affordable market conditions. The median home price in the Midwest is 22 percent below the national median price."

We got to the housing shortage largely because of bad politics and a record income inequality for working Americans that must be reversed. The best programs that subsidize building for more affordability include zoning for more units in areas near transportation centers, a state and local government mandate, and more funding set aside for affordable housing, such as tax breaks to builders for building more low income and first-time homebuyers.

Biden did that during his four years with his Housing Action Plan, that subsidized affordable housing as well as rents, but alas, much of that funding has been cut by Trump’s DOGE team in the name of downsizing government.

And a brisk summary of what Trump is doing to HUD, the government’s main housing administrator, is summarized by Shelterforce:

· HUD relaunched its website in late March, after removing 90 percent of

its content, under the pretext of improving user experience. Research publication archives, recent press releases, and much more were removed, and a religious quote of Secretary Turner’s was placed on the homepage.

· HUD Headquarters to Be Sold: With an April 15 executive order intended

to “restore common sense to Federal office space management by freeing agencies to select cost effective facilities and focus on successfully carrying out their missions for American taxpayers,”

The Trump administration, in other words, is doing almost nothing at the federal level for housing in its quest to slash government spending in order to fund Trump’s tax cuts.

Why must the federal government do better to support housing? The GW Bush administration set housing construction back a decade by causing the housing bubble with lax regulation and too easy credit conditions.

The American people will want a government that better serves Americans’ housing needs to make up for the years of mismanagement and neglect. Otherwise, the dream of many Americans for more affordable housing will forever be out of reach.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

How Much LONGER Do We Wait?

 The Mortgage Corner

“The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent on a seasonally adjusted basis in March, after rising 0.2 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.4 percent before seasonal adjustment.”

FREDcpi

Will home sales pick up at all this year? It could happen. Because inflation is declining at the moment, thanks to the tariff chaos. That’s because economic growth is slowing as the supply bottlenecks increase for autos, auto parts, construction materials and just about everything else that is imported.

This will ultimately drive-up prices, unless ultimately resolved, or we have a recession.

Fed Chair Powell said recently that the tariffs are causing too much uncertainty for the Fed to act one way or the other now, which is reflected in the sudden drop in the Consumer Price Index inflation in the above graph. There is the fear of recession in the air, which is discouraging home buyers as well.

It’s also keeping much needed new home construction on the sidelines. “Policy uncertainty is having a negative impact on home builders, making it difficult for them to accurately price homes and make critical business decisions,” said NAHB Chief Economist Robert Dietz. “The April HMI data indicates that the tariff cost effect is already taking hold, with the majority of builders reporting cost increases on building materials due to tariff

Privately-owned housing starts in March were at a seasonally adjusted annual rate of 1,324,000. This is 11.4 percent below the revised February estimate of 1,494,000 but is 1.9 percent above the March 2024 rate of 1,299,000.

Housing should be aided by moderating consumer inflation but fixed mortgage rates are still hovering close to 7 percent. Housing construction is attempting to fill the supply void. But prices won’t improve because of the tariffs on Canadian lumber and metals such as aluminum, for starters.

Meanwhile housing costs continue to go up. Newsweek reports that between March 2024 and March 2025, the biggest year-over-year price jumps were reported in the cost of natural gas (up 147.6 percent), copper wire and cable (up 13.4 percent), softwood lumber (up 12.6 percent) and construction sand, gravel and crushed stone (up 8.3 percent).

Who can still afford to buy a home? The NAR's 2025 Home Buyers and Sellers Generational Trends report found that the combined share of younger boomers (ages 60–69) and older boomers (ages 70–78) rose to 42% of all home buyers in the past year. Millennials dropped to 29% of all buyers – down notably from 38% a year ago. Generation X buyers (ages 45–59) held steady at 24%.

So first-time, entry-level homebuyers are being left out of the market at present. Home sales would pick up if the Fed Governors would realize how lower rates would energize buyers. I believe the Fed could lower rates in June, just in case the supply bottlenecks really begin to grind activity to a halt. Everyone seems to be waiting to see what President Trump’s grand plan may be, other than to intimidate every other country on the planet (which won’t work).

So, the tariffs are making home buying even less affordable. It looks like we will have to wait until the Fed begins to cut interest rates again and we see lower mortgage rates.

With the crazies in charge, who knows when?

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Our Housing Problem

 The Mortgage Corner

We know we have a housing shortage, but not how to fix it. Politicos are finally beginning to take notice because of the damage that has been done—especially to working Americans who no longer can afford a home of their own.

VP Harris is the first to respond to the need, saying she has a policy to create 3 million new dwellings in her first term as President, if she is elected. In addition to the one million units already in various stages of development, she would create two million additional units with the following incentives:

• · A new tax incentive for building starter homes
• · Expanding tax incentives for businesses that build affordable rental housing
• · Double the Biden-Harris proposed innovation fund for local initiatives to solve housing issues
• · Cut red tape and streamline permitting processes to get houses up quicker

Why shouldn’t governments fix it? The primary cause of our housing shortage was the busted housing bubble when one million too many homes were built for a number of reasons that caused the housing bubble, such as those liar loans that lenders allowed to qualify buyers with no real income.

But lax government regulation was also part of the problem. There was very little oversight of the financial chicanery that caused the failure of Lehman Brothers and the Great Recession that followed.

Housing construction went from a high of 1.4 million units annually in 2005 to just 600,000 units per year in the 10 years that followed the Great Recession.

Because of its severity, builders stopped building enough homes for a population that continued to add one million new households every year. That’s a shortfall of 4 million units over 1o years(1m-600kx10=4m). Add the fact that the millennial generation was the most populous generation since the baby boomers and had nowhere to live—so many continued to live with their parents.

It will take multiple government actions, from changing zoning laws that create more density at the state and local levels to a national program such as VP Harris outlined to cure the shortfall.

The private sector has supported public sector help in the past, when cures for the 10-year construction lapse were being discussed. I wrote about it in a 2012 Huffington Post blog piece:

“Congress isn't the only reason for housing's problem. The Obama administration is still not serious about either their HAMP or HARP II loan modification programs. They had set aside some $11 billion from the ARRA legislation back in 2009 that hasn't been spent!

“The result was banks and Wall Street kept begging the Federal Reserve to provide stimulus by buying up to as much as $1 billion more of mortgage-backed securities (to keep mortgage rates low).”

There are signs of life in today’s housing market. Mortgage rates have been plunging since the Federal Reserve began to cut interest rates, and new-home construction has picked up with enough supply to lower new-home prices. The seasonally adjusted estimate of new houses for sale at the end of August was 467,000. This represents a 7.8 month supply at the current sales rate. The median sales price of a new home sold in August fell to $420,600 from $429,000 in the prior month.

Census Bureau

Sales of new single-family houses in August 2024 were at a seasonally adjusted annual rate of 716,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±10.6 percent)* below the revised July rate of 751,000, but is 9.8 percent (±22.1 percent)* above the August 2023 estimate of 652,000.

It could be the beginning of an upward trend in overall sales, but the question now is not so much about mortgage rates, which will help sales and affordability, but adequate supply that matches more closely with household formation.

The dearth of supply is just one of the ways Americans have been paying for the excesses of the Great Recession and housing bubble. It can only be fixed with a national program that teams the public and private sectors to make housing affordable once again for entry-level as well as middle class American renters and buyers.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

When Will Housing Recover--Part II

 The Mortgage Corner

Federal Reserve Chair Powell has said the Fed is about to cut interest rates, so I’ve been wondering if the housing industry can come out of its self-made recession?

One good sign is that existing-home sales ticked up for the first time in July, after falling steadily since the recent annual rate high of 4.4 million in February 2024.

The NAR said, “Total existing-home sales^[1] – completed transactions that include single-family homes, townhomes, condominiums and co-ops – ascended 1.3% from June to a seasonally adjusted annual rate of 3.95 million in July.” (But) Year-over-year, sales fell 2.5% (down from 4.05 million in July 2023), so that’s not much of an improvement.

This could be the beginning of an upward trend in overall sales, but the question now is not so much about mortgage rates, which will help sales and affordability, but an adequate housing supply to get sales back to the 4-5 million sales that prevailed in decades past and kept a much higher supply of for sale housing on the market.

Cutting interest rates is a start but the building industry for various reasons has been reluctant to build enough new homes for decades—ever since the Great Recession of 2008-09 and busted housing bubble.

This is just one of the ways Americans have been paying for the excesses of the Great Recession since then. The housing shortage may be its most pernicious result.

Calculated Risk

Calculated Risk’s graph of existing sales portrays the damage done by the Great Recession (middle gray bar in graph). Sales had reached a 7 million annual rate in 2005 at the height of the housing bubble, then plunged to 4 million units during the Great Recession and slowly rose to more than 5 million units annually until the COVID-19 pandemic.

More than one million excess units were built during the bubble, as Greenspan’s Federal Reserve attempted to goose sales any way they could to stimulate slowing economic growth while the Bush administration was fighting the Iraq and Afghanistan wars on terror.

The housing supply should be improving in anticipation of the Fed’s rate cuts that would bring down the cost of everything that goes into building new homes.

Sales of newly built homes in the U.S. just increased 10.6% in July to an annual rate of 739,000, up from a revised 668,000 in the prior month, the Commerce Department reported Friday. It was the highest sales rate in more than one year.

For-sale inventories have also edged up some 40 percent this year, as existing homeowners now see a chance to either move to a smaller unit, or into a retirement home now that mortgage rates are declining..

We still have a housing shortage of somewhere between 1-3 million residential dwellings, including owner-occupied and rental units, without considering housing for the homeless.

Another culprit of the housing shortage has been lenders that have become more conservative since the housing bubble. A credit score of 680 was acceptable to Fannie and Freddie for their best conventional mortgage rates prior to the Great Recession, whereas it is above 720 today, which means fewer home buyers are eligible for good loans.

It is really the Fed’s job to require banks to ease their credit standards in this case. Its inaction has only made matters worse for homebuyers (and therefore renters) with the housing shortage.

Now that Chairman Powell just announced that rate cuts are in the works—probably to begin at the Fed’s September FOMC meeting—they should use some of the other tools within their powers—such as requiring more affordable loan programs for entry-level homebuyers, as well as easing banks’ credit standards.

"The time has come for policy to adjust. The direction of travel is clear," Powell said in his speech to the central bank's summer retreat in Jackson Hole.

Let’s see if Powell means what he says and the Fed really wants to help cure the housing shortage.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

U.S. Economy Has Landed

 Popular Economics Weekly

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It’s about time. Fed Chairman Powell has finally admitted in so many words that the U.S. economy has made a ‘soft landing’; economists’ term for inflation to have declined sufficiently that the Fed can begin to ease credit conditions by cutting their interest rates.

This will give a boost to the manufacturing sector that has been in recession, and many other sectors as well. It will most of all aid those consumers who had to borrow heavily just to maintain their lifestyle, and whose savings are exhausted. Most of all, it will avoid a recession that had probably begun in the housing and manufacturing industriesvisio.

"The time has come for policy to adjust. The direction of travel is clear," Powell said in a speech to the central bank's summer retreat in Jackson Hole. "The timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks," he said.

Even more importantly, he said, we will do “everything we can to support a strong labor market.” That was a huge admission that rising wages and excessive consumer demand wasn’t the inflation culprit. It was the pandemic-induced shutdown that made everything more expensive.

What must have added urgency to his announcement was the Bureau of Labor Statistics downward revision of one year’s job formations by -818,000 nonfarm payroll jobs from March 2023 to March 2024. It turns out the labor market wasn’t as strong as originally thought.

It was mostly in the service sector, which had created the most jobs to date—professional and business services, where employment was revised down by 358,000 during the period. Leisure & hospitality had the second-largest downward revision of 150,000.

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This is while the Federal Reserve’s preferred Personal Consumption Expenditure (PCE) inflation measure has remained at 2.5 percent ever since January 2024.

I have opined in past columns that inflation won’t go much lower, as long as we have decent economic growth. If prices do in fact turn negative, which is the meaning of deflation, then we will have a recession.

That is as good a definition of recession. One sees this clearly in the FRED graph above where PCE inflation dipped sharply at the 2020 recession (gray bar) and has fallen in every other recession since 1960.

There is little to fear from such an event at the moment, since predictions for third quarter economic growth are in the 2% range. Both the Atlanta Fed and New York Fed’s GDPNow estimates have dropped to 2%, because there is little investment in the housing market due the high cost of money. But that could change and boost third quarter growth with the Fed’s rate cuts.

The 30-year conventional fixed mortgage rate has dropped from 7.8% to 6.4% in less than one year. It didn’t impress the National Association of Home Builders, in part because there is still a 7.8-month buildup of new homes for sales.

There was a sudden bump in new-home sales in July, up 11 percent and 5.6 percent in a year because of the lower mortgage rates.

(But) “Despite the monthly bump in new home sales data, higher rates continue to sideline buyers as housing affordability challenges remain,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, Kan. “The only sustainable way to ease high housing costs is to implement policies that allow builders to construct more attainable, affordable housing.”

The Fed’s decision is huge on many fronts. Stock and bond prices should be able to regain the highs reached before the Fed began to raise interest rates, for starters.

Lower interest rates should also help to cure the housing shortage.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen