The U.S. Department of Housing and Urban Development (HUD) has announced a new program designed to boost affordable housing and help the nation’s housing supply shortage.

The goal of HUD’s program is to increase the U.S. housing supply by aiding local communities in the growth and affordability of housing in their area, including rentals and homeownership. HUD’s “Our Way Home” expects to include several initiatives, like advocating for zoning changes, and holding roundtables to engage local and state officials to provide solutions.

The National Association of Realtors® (NAR) welcomed HUD’s announcement to combat the housing supply challenge.

“As NAR has long recognized, a collaborative approach that involves local partners is critical to building strong, thriving, and inclusive communities,” NAR President Leslie Rouda Smith said in a statement about HUD’s new initiative.

“‘Our Way Home’ promises to not only provide tools and resources necessary to address the supply shortages plaguing the country, but it will also improve vital HUD programs based on feedback gained through this effort.”

One of the largest Pandemics in history has led to a boom in housing. An estimated 80,000 homes worth $50 billion were purchased by institutional buyers in the fourth quarter of 2021, according to Redfin. Moreover, families are facing tougher competition from buyers who have a lot of cash and are securing single-family homes, converting them into rental properties.

With record-high home prices and ultra-low inventories, homeownership has become increasingly difficult to achieve, NAR citing that Americans of color and first-generation home buyers are affected the most. The U.S. will likely take over a decade to resolve a housing shortfall of over 5 million units.

In efforts to circumvent disadvantages among traditional homebuyers, NAR proposes to support increased allocations to foster new home construction, expanded financing opportunities, and tax incentives for investors to convert unused commercial spaces into residential units.

“The shortage of affordable housing has been growing for decades – but this is a solvable crisis,” says HUD Secretary Marcia L. Fudge.

“Across the country, we are seeing many communities ending exclusionary zoning, building affordable housing in communities that previously did not allow it. We are seeing communities use innovative building models and materials, and design homes that are sustainable and resilient. And we’re seeing communities tackle homelessness by building permanent affordable housing with services. These are the types of community wins that we want to elevate with ‘Our Way Home’ and encourage others to follow.”

The housing market has been on a steady rise since bottoming out in 2008. Since the beginning of the pandemic, record surges in home prices have prompted many economists to calculate the imminence of a housing bubble. With real estate prices growing at a rate of four times the national average income, experts are now warning that the housing market is cooling.

A Housing Bubble?

Real estate bubbles occur when demand greatly outstrips supply, resulting in an escalation of home prices, according to Rocket Mortgage.  In like-markets, buyers are often forced to settle for limited overvalued properties.

By historical comparison, overvalued homes have a large effect on the housing market. In the past decade, the price of real estate increased steadily. Recently, workers were required to stay and work from home, indirectly affecting the valuation of properties during the Pandemic. In some places, like Miami and Austin, home values have surged so greatly that it has outpaced the national average.

In April, Realtor.com reported a slow down in housing demand. The real estate internet company realized an increase in inventory, citing that more homes have sold in 4 of the 5 weeks that ended that month.

What Does the Data Show?

CoreLogic, a real estate data firm, assessed that 67.9 percent of 392 U.S. regional housing markets were overvalued. With housing price reductions hitting several markets, the company now reports that only 24.5 percent of U.S. housing markets are normal and 7.6 percent are undervalued.

Among the 392 regional housing markets measured, CoreLogic has found only four markets to have a “very high” likelihood of a price drop: Bend, Oregon; Prescott, Arizona; Lake Havasu City, Arizona; and Bridgeport, Connecticut.

Opposing CoreLogic’s analysis, Moody’s Analytics believes that 96 percent of the 392 regional housing markets are “juiced-up,” stating the markets that are most likely to see price drops include: Markets in Colorado such as Colorado Springs, Fort Collins, Greeley, and Denver; Boise, Idaho Falls, and Coeur d’Alene, Idaho, Las Vegas; Jacksonville, Tampa, and Lakeland, Florida; Atlanta; Sherman, Texas; Longview, Washington; Charleston, South Carolina; Albany, New York; Clarksville, Tennesee.; Greensboro and Charlotte North Carolina.

In May, the average household income in the U.S. was $87,864, according to data by Zippia. Mortgage rates have been hovering at 5 percent compared to its 3 percent average rate in January.

Lumber costs, new home sales, existing home sales, and mortgage applications are all plummeting. Inventory is increasing, while homes sit in the market much longer, all indicative that the housing market is cooling.

The Housing Market is Cooling – Should Homeowners worry?

Naturally, the answer is no. However, a slow down in housing demand does indicate that home prices may not continue to rise at the same pace as they did since the pandemic. Additionally, while home prices are falling, there are still many areas that are undervalued.

Homeownership is a popular choice for many Americans. And although U.S. home prices have become more expensive than the average household income, experts suggest that the market will grow by another 5.9 percent over the next 12 months.

The home-buying market is getting more competitive as Wall Street investors mobilize into the single-family housing sector, driving up the price of real estate.

Research by the National Association of Realtors indicated that institutional buyers accounted for 15 percent of residential home purchases in 2021. Texas had the highest fraction of purchases with a market share of 28 percent, followed by Georgia at 19 percent.

Moreover, eighty-four percent of states have seen an increase in the number of investors buying residential homes from 2020 to 2021, including Mississippi, Colorado, and Florida.

As families look to buy new homes, they’re facing tougher competition from buyers who have a lot of cash and are securing single-family homes to make them rental properties.

An estimated 80,000 homes worth $50 billion were purchased by institutional buyers in the fourth quarter of 2021, according to the latest data released by Redfin. Homes in the mid-priced range have gained popularity with investors, representing 32.3 percent of their purchases in the fourth quarter, up from 24.1 percent a year earlier.

While rental-ready opportunities garner the interest of investors, there are a number of other factors that attract deep pockets to a specific real estate market.

Markets yielding a 40 percent appreciation in the last decade and an average of 12 percent in sales activity are highly considered. Additionally, investors are attracted to markets where rents have increased more than 30 percent on average in the past decade and where households earn more than $60,000 annually.

Buyers are battling multiple offers as institutional investors storm through the competition.

Yesterday, U.S. Senators Elizabeth Warren (D-Mass.) and Jack Reed (D-R.I.), sent a letter to the Secretary of the Department of Housing and Urban Development (HUD), calling to preserve homeownership affordability for American families as Wall Street firms expand their activity in the housing market.

According to the letter, the market conditions are favorable for large investors. More than 75 percent of investor home purchases were paid with cash. Senators Warren and Reed suggest that:

“These investment activities will make home ownership less available and affordable for American families and jeopardize HUD’s ability to meet its mission “to create strong, sustainable, inclusive communities and quality affordable homes for all.”

Families are increasingly feeling the impact of rising housing costs and a lack of inventory, even as our market begins to swift.

There were more homes for sale in 4 of the 5 weeks that ended in April, according to Realtor.com. Experts say that as inventory increases, thinking outside the box may help buyers stay competitive.