Housing’s affordability crisis

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Now, for one last time before the weekend, let's get to the news. Today we're breaking down the very tight, still quite unaffordable housing market.?

But first, our colleagues at Insider Audio are updating market news headlines all day. You can listen to the latest right here:

1. Everyone's talking about how the Fed's rate hikes have sent mortgage rates skyrocketing. But even as mortgage rates have climbed above 7%, my colleague Alcynna Lloyd and I report that there's more to the story.?

Economists told us that there's a second part to the housing affordability issue, and that an under-investment problem has been quietly simmering in US residential real estate for over a decade.

"There's still this gap between demand and supply because we were underbuilding for many years," Nadia Evangelou, senior economist for the National Association of Realtors, told us. "So now we see demand is slowing, but it still outpaces supply."

The general gist is that the surge in home prices — fueled by the low rates of the pandemic era — hasn't come down as fast as mortgage rates have come up.

And that shortage, Evangelou said, can be traced back to the early aughts leading up to the 2008 financial crisis. Homebuilders built so many houses that inventory dramatically outpaced demand.?

But companies have overcorrected since then. The rate of building dipped below the historical average for the next decade.?

Robert Dietz, chief economist for the National Association of Homebuilders, said the pandemic made things even worse.

"We know that higher mortgage rates price out demand across the board for both new and existing markets, but the challenge is particularly acute in new construction because you also have the run up in construction costs," he said.?

Any meaningful declines in prices remain unlikely, according to real estate experts, and inflation, high cost of materials, and tight supply of homes look like they'll persist for some time.?

Evangelou's prognosis leaves little room for Americans seeking a new home: "Home buying activity is slowing down, it's the biggest slowdown since 2007, with eight straight months of home sale declines. But we don't see that in home prices."?

There's a saying, "all real estate is local." What trends have you noticed in your community? Are prices increasing or decreasing in recent months?

Comment below, tweet me (@philrosenn) or email me ([email protected]).

2. US stocks?climb as investors digest the fresh jobs data, which came out at 8:30 a.m. ET.?Nonfarm payrolls increased by 261,000 in October, above the expected 205,000. Meanwhile, the unemployment rate climbed to 3.7%, above the expected 3.5%.?Take a look at how the S&P 500 is moving now.

3. This self-made millionaire who made his money investing in real estate isn't interested in taking out a mortgage right now. Todd Baldwin, a Seattle-based investor, said he isn't going to pay more than 6% interest: "If the deal is over 6%, I'm going to pay cash and hopefully get a discount."

4. A 32-year-old military veteran who owns 74 rental units explained her cash flow strategy. She was able to add roughly $47,000 annually to profit margins without buying any more properties. Here's her plan to navigate the uncertainty in the current market.?

5. Stocks still don't look cheap and investors shouldn't get bullish too soon, according to a senior strategist for Goldman Sachs. Ben Snider said rising interest rates present headwinds, but he's not expecting a recession. The Wall Street pro broke down how to make the most out of limited upside and stay safe in 2023.?

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This newsletter was curated by Phil Rosen.