This week in Bidenomics: All the missing homes

When interest rates started rising in 2022, there was hope that home buyers might get a break. Super-low rates during the COVID pandemic caused a surge in demand that pushed home values to new record highs and priced out many buyers. Higher rates would normally depress demand, bringing prices down. Last fall, home prices did begin to decline, suggesting a correction was underway that would eventually put more homes within the reach of more buyers.

It hasn’t worked out that way, and the kink in the equation is supply: There simply aren’t enough homes. The latest data show that existing-home sales, which account for most sales, fell in June, while the median price of a home rose to a near-record high. Mortgage rates have jumped from a record low of 2.7% in early 2021 to about 6.75%, which sharply raises the monthly payment on a home. Yet many listings still get multiple offers and one-third of all homes sell above the asking price, according to the National Association of Realtors.

Since prices have held steady while rates have risen, home affordability has worsened dramatically this year. The Atlanta Fed’s affordability index is at the worst levels since the 2006 housing bubble, when fraud, greed, and regulatory loopholes sent prices spiraling to abnormally high levels.

Is the snarled housing market President Biden’s fault? And is it his problem? Housing is obviously sensitive to interest rates and Federal Reserve policies, which the president doesn’t control. Other factors are largely local, including permitting and zoning. Yet Biden has promised to help make housing more affordable, with mixed success.

“I believe this administration cares about housing, but they continue to put regulatory barriers in the way of producing affordable homes,” Jim Tobin, CEO of the National Association of Home Builders, told Yahoo Finance. “We want to find ways to lower regulatory burdens and increase our ability to put more supply in the marketplace.”

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Several factors have converged in unusual ways to crimp the supply of both existing homes for sale and new construction. Millions of homeowners refinanced their mortgages at extraordinarily low rates during the last couple of years, substantially lowering their living costs. Those owners are now reluctant to sell or move since they’d give up the locked-in savings and have to buy something else at today’s higher rates. That’s a big reason existing home sales are dropping.

New-home construction is constricted by several factors: high rates, a shortage of available land due to local permitting rules and other barriers, shortages of some building materials, and a lack of skilled construction workers. Some of those are ongoing problems that have led to a chronic shortage of new housing. Analysts estimate the United States is short somewhere between 1 million and 7 million homes.

Biden is trying to help. The infrastructure law he signed in 2021 includes financial incentives for local governments to increase housing supply and speed construction. That money is just starting to flow. A Biden administration “housing supply action plan” contains other measures to assert federal authority where it might help improve supply. Earlier this year, the government lowered the insurance premium for buyers who qualify for Federal Housing Administration (FHA) loans, an assist to many first-time buyers. And Biden’s budget request for the next fiscal year includes $175 billion to help provide affordable housing, though there’s little chance Congress will approve that since Republicans control the House of Representatives.

Yet other Biden measures could undercut housing affordability. A plan to raise energy-efficiency standards for new homes could save money in the long term but raise construction costs on entry-level homes by $6,000 to $12,000, according to an industry group. Biden has left the Trump tariffs on many Chinese imports in place, which raises the cost of some building materials. There’s also an ongoing trade dispute with Canada that raises the cost of lumber. That pre-dates Biden, but he hasn’t resolved it either.

Like many other parts of the economy, the housing market is complex and there’s no silver-bullet solution to its problems. The Federal Reserve is probably close to finished hiking interest rates, so financing costs may finally plateau. If the economy weakens by next year, as some economists expect, the Fed may reverse course and start cutting rates. That could lower financing costs, but if supply stays tight, it may not move prices much, if at all.

Biden is entering campaign mode and touring the country to talk up what’s good about the economy. He doesn’t usually have much to say about housing. The White House points out that housing inflation is moderating, but the cost of housing is still going up at an annual rate of 6.3%, more than twice the rate of overall inflation. If buyers are ever going to get a break, it might not happen until the next presidential administration is in place.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman

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