- Biden has a plan to make housing more affordable, but prices might be stuck in the stratosphere.
- Biden's proposals may not be enough to tackle the housing shortage that's pushing up prices.
- It will take years for more supply to slow the pace of home price growth, economists say.
Americans waiting for the housing affordability crisis to ease might be waiting a long time, even with President Joe Biden's proposals to open up the market to more Americans, real estate experts told Business Insider.
That's not to say Biden's list of proposals to lower housing costs won't have an impact, according to Daryl Fairweather, the chief economist of the real estate listings site Redfin.
But some ideas — like tax credits for first-time buyers — do little to tackle the housing shortage and may end up stimulating more demand. That means any relief is unlikely to come in the form of bringing down sky-high prices.
"The effect on the housing affordability crisis is going to be muted. It's not going to be noticeable even in the long run," Fairweather said.
Low housing inventory is at the heart of the affordability issue. A lack of new construction of single-family homes since the financial crisis combined with the "lock-in" effect of existing homeowners staying put to hold on to their low mortgage rate has created a big supply-demand imbalance.
Some of Biden's housing affordability measures would fuel demand further at a time when supply is still historically tight, according to Lawrence Yun, the chief economist of NAR.
While the president's initiatives could help lower-income families get into the housing market, it could also exacerbate the supply-demand imbalance, putting upwards pressure on home prices overall.
"The current situation is really about supply," Yun said.
Addressing a dearth of housing
According to Fairweather, the only initiatives that will make a long-lasting difference in home affordability are Biden's efforts to build more houses. The President is pushing for Congress to pass legislation to build or renovate around 2 million homes, which would help alleviate the lack of inventory.
Estimates of America's housing shortage range from 3 million homes to as many as 6 million.
The Biden administration is also offering a one-year $10,000 tax credit to homeowners who are willing to sell, which could unlock housing supply from those who own multiple properties, Fairweather said.
But what's really needed is new supply, and building enough homes to make housing more affordable is a huge task in America. Yun estimated that it could take at least three to four years of building for supply and demand to balance out.
Fairweather thinks it could take around a decade to build Biden's proposed 2 million homes. Building in America is difficult, and construction is often governed by a patchwork of local and state rules that make it hard for developers to break ground.
"Biden has his plan, which is to pump money into the system. But the problem with the housing market isn't really that there isn't enough money going toward housing. It's more the red tape and the local opposition that has been the biggest barrier to building housing," Fairweather said.
Even once that supply is added, the effect on home prices could still be muted. That's because the country is already deep in a housing shortage, Yun said, and it will take years for supply to catch up with demand, let alone have demand exceed supply, which is what would cause prices to drop.
"It will not come down in any meaningful way," Yun said of home prices. "Maybe there's a single-digit price adjustment temporarily, but any meaningful [decline] is not going to happen … So for anyone who's just waiting and waiting, well, that time will be long."
The upside is that prices aren't likely to rise much more. Yun thinks home prices will stay around their current level for the next three years before more supply finally makes its way to buyers. Then, assuming supply catches up with demand, the growth of home prices will likely slow in line with people's growing incomes, meaning housing will feel more affordable, even as actual prices don't see much of a change, he predicted.
The median sale price of a home in the US clocked in at $417,000 in the fourth quarter, according to data from the Department of Housing and Urban Development. That's a 27% increase from how much homes cost prior to the pandemic, with the median sales price clocking in at $327,100 in the fourth quarter of 2019.
Home prices were already up 6.5% year-over-year in February, according to Redfin data. According to an analysis by Zillow, homebuyers need to earn 80% more than they did before the pandemic to afford a home in 2024.