Americans feel better about the housing market right now than in recent years, but that doesn’t mean the nation’s affordability problems are set to improve dramatically anytime soon.
“It’s going to be tough, there’s no question,” Marcia Fudge, secretary of the Department of Housing and Urban Development (HUD), tells Money.
Already this year, easing mortgage rates have piqued buyer interest and helped produce a small increase in home sales. But many obstacles remain, especially for first-time homebuyers and those with low-to-moderate incomes, meaning optimism about housing affordability in 2024 should be taken with a grain of salt.
Fudge’s rating, for example, is based on other Factors that make buying a house difficult. In addition to facing still-high mortgage rates, buyers are facing high home prices and low inventory, meaning they must pay more for a limited selection.
Despite the challenges, Fudge says he is optimistic that HUD will be able to help homebuyers by expanding many existing services. Last year, these programs helped more than 675,000 borrowers get loans and buy homes, according to the federal government.
HUD initiatives include counseling to help would-be buyers understand the homebuying process and changing how borrowers with student debt are evaluated for mortgages. The department also changed how the agency, through its Federal Housing Administration (FHA) lending program, determines a borrower’s creditworthiness: It now takes into account on-time rent payments, which ultimately end makes it easier to get a home loan.
Fudge says he’s also excited about the possibility of increasing the department’s down payment assistance programs, for which President Joe Biden has requested $100 million in funding in his current budget. In 2023, nearly 230,000 FHA borrowers were able to obtain a mortgage with federal down payment assistance; if approved, Fudge says Biden’s funding could help reach even more borrowers.
While making financing more accessible is one of HUD’s main goals, there are other issues the agency is working on to help improve affordability.
Why inventory remains a challenge for the real estate market
Aside from mortgage rates, one of the major obstacles homebuyers face is the severe lack of affordable homes for sale. Following the 2008 housing crash, fewer homes were built, causing inventory to lag behind the rate of household formation even after the market recovered.
According to Fudge, the United States is about 3 million homes short of a healthy supply of affordable housing, making it difficult for low-income families to become homeowners. There is too much competition for available homes, which has pushed home prices out of reach for many.
“Over the last decade or so, we have spent very little resources building affordable housing,” Fudge says, referring to the lack of incentive for builders to create less expensive homes.
He says he believes the answer lies in alternative housing options such as modular homes, accessory dwelling units (ADUs), and prefabricated homes, among others. HUD initiatives such as the Community Development Block Grant, which provides local governments with funding to develop affordable housing, are an important part of the Biden administration’s efforts to increase the supply of affordable housing.
Other options for more affordable housing include the development of tiny home communities, which have been used in cities like Austin, Texas, as a means to combat homelessness. (More recently, tiny home villages have grown in popularity.) Alternatives to waiting for new homes to be built also include converting vacant commercial buildings into residences and renovating some of the approximately 15 million vacant homes in the United States.
Working with local governments to change zoning laws, which often prohibit the construction of condominiums and ADUs in suburban areas, is another piece to solving the inventory puzzle: Local housing restrictions can increase the cost of a home by almost 30%, adds Fudge.
“We can’t get out of this situation by simply building new buildings,” he says. “We just need to get communities to start looking at things differently.”
Inventory shortages mean home prices are likely to rise in most markets across the United States as buyer demand continues to outpace the number of homes for sale. According to the National Association of Realtors, the average home price is expected to increase about 1% this year, with some markets seeing more significant price growth.
Adding more supply to the market can help stabilize the cost of purchasing a home. The caveat? While some cities may see a decline in home prices this year, in general they won’t go down until new listings increase.
Despite the challenges buyers will face in the 2024 housing market, Fudge remains confident solutions will be found soon because the affordability crisis has helped bring attention to the issue.
“Finally, everyone in this country now realizes that affordable housing, or the lack thereof, is in crisis,” he says. “Once people focus on that and make it a priority, they tend to work harder around it.”
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