‘A crisis of our own making’: The NAHB CEO says sky-high houses prices and supply shortages are here to stay — unless the US follows this ‘one way out’ of its housing mess

US real estate market: ‘Crisis of our own making’

As U.S. mortgage rates and house prices continue to hover near record highs, speculation around whether the housing market is in a bubble (that’s ready to burst) is growing.

But Jim Tobin, the president and CEO of the National Association of Home Builders, is putting a pin in that hypothesis.

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“I don’t see it as a bubble,” he told Fox Business in mid-February. “What we are facing is a crisis of our own making. Coming out of the Great Recession, builders were apprehensive to get back into the market in a big way. [They were] fearful of putting too much supply in the market and regenerating that big boom market that we had in the 2000s.”

That’s what created the country’s housing supply shortage, according to Tobin.

“Once we started to bring back our supply, we ran into headwinds with land use policies being very restrictive, lot prices, persistent labor shortages [and] then we ran into supply chain issues,” he said. “That’s why housing [prices are] going to continue to stay high.”

The only way out of this conundrum, according to Tobin, is to “build more housing.” But does the U.S. economy have the foundations to support that?

Optimism builds as rates edge down

Mortgage rates remain painfully high — at an average of 6.82% for a 30-year fixed mortgage and 6.02% for a 15-year fixed mortgage, as of April 4 — which is stopping prospective buyers from entering the market.

The rates are creeping down from their October 2023 highs, when they topped 8% for a 30-year fixed mortgage. But any change in favor of home buyers will likely be limited until the Federal Reserve decides to cut interest rates — and the jury is out on when that might happen.

“We need mortgage rates to continue to fall,” said Tobin, when discussing home builder sentiment in the U.S. “It’s going to be an uneven ride between now and ultimately when we think interest rates are going to settle down — we think in 2025.”

As the rates tick down, builder confidence in the market for newly built single-family homes is increasing, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

“Buyer traffic is improving as even small declines in interest rates will produce a disproportionate positive response among likely home purchasers,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala.

“And while mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year.”

Focus on affordability

Like his fellow home builders in the NAHB, Tobin is growing more optimistic about the state of the U.S. housing market.

“I think investments are going to flow into housing because there’s money to be made in [creating] more supply — not because of a crash or a crisis,” he said.

There is certainly a lot of money out there, especially for Americans who have invested in the stock market. The S&P 500 and the Dow Jones have both surged to record highs in 2024 thanks in part to an AI-fuelled rally.

When asked whether those stock market gains may spill over into real estate investing, Tobin acknowledged there will always be wealthy Americans buying and selling properties, regardless of the market conditions.

But he’s hopeful that when mortgage rates finally settle down, more parties — including first-time home buyers — will be able to get into the market. And he insisted that new homes being built are “smaller” and come with lower price tags to cater to a broader range of buyers.

He added: “The main thing is: let’s get housing more affordable so more Americans can get into homeownership.”

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