4.3 million more homes needed to meet demand: report

The U.S. housing market is in need of 4.3 million more homes, a report by Zillow finds. 

Due to high mortgage rates and the low number of homes on the market, the deficit grew by 37% between 2015 and 2021. The market was only short of 2.7 million homes in 2015. 

Eight million families in the U.S. lived with nonrelatives, or "doubled up," in 2021. Zillow subtracted this from the total number of units for sale that year — 3.7 million — to measure the amount of inventory needed. 

The Federal Reserve Bank of Atlanta's National Home Ownership Affordability Monitor index quantifies the current lack of affordability. The index measures how well a median-income household can pay for a median-priced home. A score lower than 100 points means the median home price is greater than 30% of median household income. 

The national HOAM index hit 73.4 in April, with a median household income of $75,528 and a median home price of $356,667. 

A common benchmark for assumed debt, the 28/36 rule, says households should spend only 28% of their income on total housing expenses and 36% of it on total debt. The HOAM index says the annual total housing cost for a median-price home made up 40.9% of median income, far outside the recommended 28%.

Low supply and high mortgage rates are likely to blame.

Average mortgage rates sit at 6.67% according to the most recent survey by Freddie Mac. There are only three months of unsold inventory supply available, according to a report by the National Association of Realtors. With less than five months of supply, a benchmark for Realtors, it's a tight market.

Inventory has decreased more than 40% since 2018, according to a separate report by Redfin. 

At the same time, investor participation in the market via home flipping — which tends to help drive higher prices — saw its highest volume and market share in two decades in 2022. The typical purchase price was $249,000 and typical resale price was $305,000, a profit margin of 22.5%. 

A recent report by the Harvard University's Joint Center for Housing Studies said that last year, buyers looking to rent or flip houses made up 28% of single-home buyers, up from 19% in 2021.

The housing deficit varies across the country, with the biggest gaps in big cities: New York, Los Angeles, San Francisco, Boston and Washington D.C. respectively. New York is missing 376,000 units, Los Angeles is missing 334,000, and San Francisco is missing 162,000. Only a handful of small southern cities have a surplus of homes available.

The Zillow report recommends "zoning reforms to allow for more housing units" in major cities to help bridge the 4.3 million home gap.