The COVID-19 pandemic has brought dramatic changes to the US housing market. At the start of the pandemic, home sales and new construction stalled at first due to economic uncertainty. But as the US went into survival mode and the federal funds rate was cut sharply, home buying and construction resumed. The rise and spread of telecommuting has not only prompted Americans to prioritize their space (and home offices), but has also allowed people to seek housing outside of their typical boundaries, increasing demand and pushing up home prices.
While the federal funds rate was initially cut to support spending in other areas to help the battered economy, the fall has been long-lasting. After a net decline of 1.5% in 2020 and no rate changes in 2021, 2022 saw the biggest increase in over 30 years with an overall net increase of 4.25%. In an effort to curb the raging inflation that began in 2021 and continued through 2022, the Federal Reserve initiated a series of the most aggressive rate hikes in decades. First, the Federal Reserve raised interest rates by a quarter point in March 2022 and then by half a point in May. There was a three-quarters of a percentage point increase in June, which was repeated in July, September and November before rising by half a percentage point in December.
While the federal funds rate doesn’t directly affect mortgage interest rates, it does affect how much it costs banks to borrow money from each other. This, in turn, affects mortgage rates, helping to explain their sharp rise over the past year. By making loans more expensive, fewer people can participate, causing a ripple effect in the housing market.
While high mortgage rates are a major deterrent to potential homebuyers, they do contribute to increasing the housing stock. Low interest rates and strong demand in 2020 and 2021 contributed to a significant reduction in the housing stock between January 2020 and December 2021, which fell from nearly 1.3 million to just over 650,000 homes, according to Redfin data. This is in line with the broader trend of the past two decades: from May 2012 to January 2022, the US housing stock fell from 2,194,184 affordable homes to 629,904 – a net decrease of more than 1.5 million.
However, with rising mortgage rates and an increase in housing construction during COVID, the US housing stock is finally showing signs of growth after several years of steady decline. From January 2022 to October 2022, the US housing stock increased from 629,904 to 1,173,927 affordable homes. While home inventory is still below pre-pandemic levels (March 2020 home inventory was 1,365,211), this recent rise is promising for future homebuyers seeking lower asking prices.
Although the housing stock in the US as a whole is increasing, some geographies are seeing faster growth than others. The Western US saw the largest housing stock growth from Q3 2021 to Q3 2022. Six states in the western region made the top ten out of all 50 states, with Nevada (+74.7%) topping the list. Utah and Washington were not far behind, seeing positive changes of 63.0% and 60.8% respectively.
This growing housing stock trend in the west applies to cities of all sizes, as well as some cities in states such as Florida, Michigan, and Texas, which are attractive places to buy a home due to their growing job markets and affordable cost of living.
To determine the locations with the largest increase in housing stock, researchers at Construction Coverage analyzed the latest data from the Redfin data center. The researchers ranked the states by percentage increase in housing stock on an annualized basis. In the event of a tie, the state with the highest overall change in average monthly housing stock was ranked higher.
In Texas, the total housing stock increased by 42.6% between the third quarter of 2021 and the third quarter of 2022. Among the 48 states for which complete data is available, Texas ranked 5th in terms of housing expansion. Here is a summary of data for Texas:
- Percent change in housing stock: +42.6%
- General change in the housing stock: +24 505
- Monthly supply (Q3 2022): 2.8
- Monthly Supply (Q3 2021): 1.6
For reference, here are the statistics for the entire United States:
- Percent change in housing stock: +20.9%
- General change in the housing stock: +201 939
- Monthly supply (Q3 2022): 2.2
- Monthly Supply (Q3 2021): 1.5
For more information, detailed methodology, and full results, you can find the original report on the Construction Coverage website: https://constructioncoverage.com/research/cities-with-the-biggest-increase-in-housing-inventory-2023.