Housing Prices Likely to Remain High as Supply Remains Low, Disproportionately Affecting Minorities

Housing demand remains strong amid tight supply, a tight credit market and low interest rates, while major urban areas experience higher-than-average vacancy rates and declines in rent as renters shift to suburban markets.

However, the pandemic has not only created a shift in demand; it has also shone a brighter light on housing disparities, according to The State of the Nation’s Housing 2021 report from Harvard University’s Joint Center for Housing Studies (JCHS).

Data from the report note that households of color and renters are more likely to be behind on payments — a concerning factor as forbearance and eviction moratoria policies begin to expire. Many households were already cost burdened — i.e., paying more than 50% of their income toward rent — prior to the pandemic, placing additional financial burden on them. Overall, 17% of renters are in arrears, with a greater percentage of Black (29%), Hispanic (21%) and Asian (18%) renters behind in payments than white (11%) renters.

Home owners have fared somewhat better, with a majority of the 7.1 million loans in forbearance either current or paid off as of March 2021. But the 2.3 million borrowers that have not resumed payments may face challenges, especially if the missed payments, property taxes and insurance premiums exceed the value of the home. Racial disparities are present here as well, with Black, Hispanic and Asian home owners making up a greater percentage (15%+ each) of borrowers in arrears than white home owners (less than 10%).

Spikes in home prices will also challenge housing affordability moving forward. The market's historically low supply — which dropped below two months for the first time ever — will need to catch up for the market to moderate.

“I don’t think we’re in a bubble,” noted Chris Herbert, JCHS managing director, during the report’s livestream release. The factors contributing to the current rise in housing prices is substantially different from the rise seen before the Great Recession, he added, which was fueled in large part by a less stringent lending market.

“The Joint Center for Housing Studies 2021 report confirms NAHB’s overview of the housing market over the past few years,” said NAHB Chief Economist Rob Dietz. “The housing market lacks supply, and residential construction has been challenged by a number of issues such as regulatory burdens, building material availability, land/lot access, and a skilled labor shortage.”

Rising home prices are likely to continue as supply remains low, due in part to sharply rising material costs. This will continue to price people out of the market, particularly people of color. The report notes that neighborhoods in which minorities comprise more than half the population saw price increases on average of 14.3% — 3.5 percentage points higher than the average for metro areas overall.

“The best solution to tame recent unsustainable gains in home prices, and to similarly ease rent burdens is more supply: more single-family and multifamily construction and more remodeling of the existing housing stock,” Dietz added.

To read the full report, visit jchs.harvard.edu.