Bank of America, research reveals that throughout the United States, potential homebuyers are confronted with a persistent shortage of homes for sale. However, the severity of this scarcity varies across different regions.
The study identifies four key cities where this crisis is most pronounced, with three of them situated in Texas: San Antonio, Dallas, and Houston. The fourth city on the list is Orlando, Florida.
The research explains that these cities are in the epicenter of the issue due to their rapid population growth and already limited housing supply. The study characterizes this cluster of cities as the “hot quadrant,” marked by significant population expansion, a succeeding job market, and a shortage of available homes.
In June 2023, both Dallas and Orlando demonstrated prominent payroll growth, well exceeding the national average. Moreover, these cities continue to attract newcomers searching for employment opportunities, as highlighted.
However, this surge of new residents comes with a dual impact, as the ratio of housing availability to the population in these urban centers has dropped below the national average. In 2022, the average number of housing units per person stood at approximately 0.43% nationwide. In contrast, Dallas and San Antonio exhibited rates of just 0.39% and 0.40%, respectively.
Consequently, these cities are also witnessing a considerably steeper growth in home prices compared to the typical levels observed over the past two years. For instance, when compared to the same month in 2019, home prices in Orlando have surged by a notable 58%, while Dallas has experienced an increase of approximately 49% in housing prices.
City Responses to Housing Shortages
Indications are emerging that the cities are taking steps to tackle the shortage of available homes. In the initial five months of 2023, all four cities witnessed a greater-than-average issuance of permits on a per capita basis. Furthermore, as the disruptions stemming from COVID-19 gradually subside, new completions of multifamily housing units are projected to reach a historic peak in 2024.
Therefore, while it’s positive that cities with lower housing supplies are already observing increased construction activities, the essential question is whether this supply growth will persist if the ongoing migration patterns continue in these burgeoning regions.
The research remarks, “The critical query revolves around whether the supply will manage to keep pace should the trend of inward migration persist in these rapidly developing areas of the nation. If not, the demand for housing will persist strongly.”
Conversely, there are cities situated at the opposite pole of this spectrum, where a relatively abundant housing supply is evident. This surplus can be attributed to either a decrease in population or an excess of construction activity. St. Louis and Detroit are probably representative of the former scenario, whereas Miami could exemplify the latter case.
Effects, Analysis, and Future Considerations
In each of these three scenarios, homeowners might need to prepare for a potential decline in property values. The question raised by the report is, “What implications does this hold for the local housing market?” The note further elaborates, “This dynamic could imply that as the demand for home sales gains momentum again, house prices might experience a more pronounced cooling effect in the long term.”
The analysis was undertaken by Bank of America, who examined current migration patterns using their internal data in conjunction with housing inventory.
These discoveries coincide with the challenges faced by potential homebuyers and sellers across the nation due to a scarcity of housing. According to the latest estimates provided by Freddie Mac, there exists a deficit of approximately 3.8 million housing units for both sale and rent within the country.
Persistently low inventory levels have contributed to maintaining prices at a notably elevated level, despite mortgage rates remaining close to the highest levels witnessed in decades.
The analysis conducted by economists at Fannie Mae highlights that the ongoing dynamics of the housing market are still being driven by the scarcity of existing homes ready for sale.This trend remained unchanged even during the spring homebuying season, which traditionally sees an increase in the number of homes entering the market.
The economists noted, “This shortage has been instrumental in reigniting growth in home prices over the past few months and has continued to provide impetus to the construction of new homes.”
Bank of America’s research exposes a persistent housing shortage across the US, with varying severity by region. Key cities like San Antonio, Dallas, Orlando, and Houston grapple with demand-supply imbalances driven by rapid growth. While some areas face high home prices due to limited inventory, others with excess supply may see values decline. The market’s future hinges on how supply can meet migration trends.