The Over/Under on Housing


If you’ve bought a house in the past four years, then you know how difficult it has been to navigate the housing market. In 2021, houses in certain parts of the country were sometimes selling for 20-30% over asking price. While the average price for a home has retreated from its peak, prices remain well above pre-pandemic levels and interest rates are at multi-decade highs, making the cost of owning a home more expensive than ever. Over the last two weeks, recent data releases suggest some reprieve, yet challenges still abound.


Single Family Housing Starts – A Bright Spot


The number of new housing units being built has begun to climb after a lull in late 2022 as mortgage rates soared and scared off many buyers. According to the most recent data release, single family housing starts are 6% above their pre-Covid levels, offset by a sharp 50% decrease in multi-family housing starts. 

Housing Starts – Single versus Multi-Family

Source: Kestra Investment Management with data from the US Census Bureau. Data as of April 23, 2024

New home sales data shows a slow upward trend from the bottom in 2022. In March, new home sales increased 8.8% from February and 8.3% from March 2023.

Naturally, the question is, why are single family housing starts and new home sales up even as interest rates have increased, making homes more expensive than ever? Demographics explain part of this, as millennials are eager to buy their own houses, but this question can also be explained by a shortage of available homes.

The Housing Shortage

While housing starts remain well-above the pre-Covid average, the United States is still short nearly 3.2m homes, and even more by other measures. This is partly due to significant underbuilding in the aftermath of the global financial crisis (“GFC”). From July 2008 through the end of 2014, housing starts averaged less than 1 million per month, compared to the average since 2014 of 1.3 million per month. Simply put, there is still a lot of catching up to do to make up for 6+ years of underbuilding in the US.


The underbuilding of the last few years also came on the heels of several decades of limited housing. While rental vacancy rates are approaching their long-term average, home vacancies are near historic lows.

Homeowner and Rental Vacancy Rates

Supply of Existing Homes


Further compounding this issue is the short supply of existing homes for sale. Before the Fed began its hiking cycle in 2022, many homeowners had locked in record low mortgage rates ranging from 2.5-4%. With current mortgage rates over 7%, many existing homeowners are incented to stay put and maintain their low rates, keeping many homes off the market. This lock-in effect is evidenced by the less than three months’ supply of existing homes for sale, versus a “normal” supply of five months. In fact, existing home sales in March declined 4.3% from February and 3.7% from March 2023.

Months Supply of Existing Homes for Sale (%)

Source: Kestra Investment Management with data from FactSet. Data as of February 29, 2024

Significant underbuilding post-GFC plus the lock-in effect has constrained supply and has provided a floor for prices despite multi-decade high interest rates. Although the average sales price has dropped sharply from its peak in Q4 2022, prices remain about 28% above pre-pandemic levels.


While homebuilders’ confidence has been rebounding from its low in 2022, we don’t expect mortgage rates to retreat to the lows experienced a few years ago. Even if the Federal Reserve begins to cut short-term rates this year, longer-term rates will likely be buoyed by persistent inflation and a high level of Treasury debt issuance. That said, as more time passes, existing homeowners will become increasingly motivated to sell simply because of life changes – retirements, new jobs, growing families – that eventually make moving imperative. Over time, this trend could provide a welcome supply of existing homes for those would-be buyers.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Investment Services, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by any entity for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Investment Services, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC. Does not offer tax or legal advice.

Kara Murphy

More about the author: Kara Murphy