US Needs 1.5 Million More Homes To Tame Record Prices

What is the key to bringing home sale volume up and home prices down? America’s current problem is insufficient supply, according to a new report outlining trends in the U.S. housing market.

The Data: Freddie Mac’s May macroeconomic report examined key trends in the housing and mortgage market.

While 2024’s higher-for-longer interest rate environment remains the most obvious obstacle to lowering home prices, the report emphasized supply as a means to restore the market to balance.

According to the report, vacancy rates?a very low 0.8% for housing and 6.6% for renters?must be restored in line with historical averages to make a dent in housing prices. In the first quarter of 2024, the total number of for-sale and for-rent units was 1.5 million below the balanced supply.

Why it Matters: Home prices have reached record levels in 2024. In June, the median sale price of a U.S. home hit an all-time high of $394,000. The median price for renting has also risen steadily in recent months, albeit showing some signs of slowing.

The rising price of homes has made the American dream of owning a home unsustainable for many Americans, especially members of Generation Z.

Increasing the U.S. housing supply is a logical solution to bringing housing prices down and making shelter affordable for most Americans.

Market Implications: Companies involved in residential construction stand to benefit if there’s a push to increase housing supply. These include major homebuilders such as D.R. Horton Inc (DHI) , Lennar Corp (LEN) and PulteGroup, Inc. (PHM) . Increased demand for new housing units could drive up their revenues.

The iShares U.S. Home Construction ETF (ITB) and the SPDR S&P Homebuilders ETF (XHB) are among the largest exchange-traded funds tracking the home construction sector. The iShares U.S. Basic Materials ETF (IYM) tracks materials, some of which are used in construction.

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Image generated using artificial intelligence via Midjourney.