Prospective homebuyers and sellers are locked in a holding pattern, as persistently high mortgage rates and elevated prices keep them from making a move.
The US housing market, usually a tailwind for economic growth, is in a rut and could “soon be a full-blown headwind,” said Mark Zandi, Moody’s Analytics chief economist. “I sent off a yellow flare on the housing market in a post a couple of weeks ago, but I now think a red flare is more appropriate,” he wrote on LinkedIn and X, formerly Twitter.
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Home sales, or lack thereof, have caught the attention of policymakers, but the shortage of affordable housing appears to be more urgent in the segment of the market that gets less attention: rentals.
Moody’s latest housing report highlighted pockets of severe rental shortages underlying nationwide estimates. “While there are certainly markets that struggle with an adequate supply of homes to purchase, particularly entry-level homes, the majority of shortfalls across the nation are in rental markets,” according to the authors of the report, who include Zandi:
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City-level analysis reveals more pronounced imbalances for specific income groups. There are “meaningful” shortfalls in rental homes in cities with populations of more than 1 million across groups, except for the high-income bracket. Income groups are based on census tract data and defined by average incomes relative to the median income.
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Aggregated data for Philadelphia’s rental supply doesn’t show a meaningful deficit, because shortfalls in lower-income areas are largely offset by oversupply in wealthier areas. Data show a similar dynamic in Raleigh, North Carolina. In St. Louis, Missouri, a huge undersupply in rentals is obscured by an oversupply of homes for sale.
The analysis understates the shortfall in some census tracts experiencing recent gentrification, because while new supply would appear to serve existing income groups living in the area, developers tend to tear down existing supply for low- or modest-income residents to build for high-income renters.
Under pressure: Policymakers, homebuilding chiefs and real estate leaders have criticized the Federal Reserve and Chair Jerome Powell for not doing enough to ease the housing crisis by cutting interest rates. That isn’t likely to inspire action anytime soon. “I find it appropriate to hold our policy rate at the current level for some time,” Federal Reserve Governor Adriana Kugler said in prepared remarks at the Housing Partnership Network Symposium in Washington, D.C., on Thursday. Tariffs are pushing up consumer prices, she explained. CME FedWatch puts the probability of a cut at less than 5% when the Federal Open Market Committee meets at the end of the month.
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