Why a Housing Market 'Thaw' Never Came in 2024

Despite expectations of a housing market 'thaw' in 2024, prices have continued to rise, with the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index showing a sixth consecutive monthly increase in September 2023. This persistence can be attributed to a supply-demand imbalance, exacerbated by homeowners hesitant to sell due to low mortgage rates secured years ago. Policies aimed at increasing housing supply, such as inclusionary zoning and tax incentives, have had limited impact. According to a study by the National Association of Realtors, only 15% of new housing supply is affordable to low- and middle-income households, indicating a need for more targeted policies to address affordability.



The supply-demand imbalance in the housing market has persisted despite affordability challenges. High mortgage rates, rising prices, and low inventory have kept buyers at bay, with home sales hitting a 13-year low (CNN, 2023). However, homeowners are hesitant to sell, exacerbating the supply crunch (EconReview, 2023). This imbalance is driven by stringent long-term supply constraints and rising demand, creating tension among economists on how to address affordability without risking a market collapse. Policies like rent control, social housing, mortgage subsidies, and inclusionary zoning are being considered, but a solution remains elusive.



Low mortgage rates secured years ago have significantly contributed to homeowners' reluctance to sell. Despite rising mortgage rates, homeowners are hesitant to sell due to their low, locked-in rates. This phenomenon, often referred to as "golden handcuffs," makes it less attractive for homeowners to sell their properties and move, as they would face higher borrowing costs. Consequently, this supply crunch drives up housing prices, as fewer homes are available for sale.

The Fed's hawkish approach and interest rate hikes, including the 5.2% to 5.5% target range in September 2023, were expected to cool the housing market. However, despite mortgage rates surpassing 7%, housing values continued to rise due to a supply-demand imbalance. Homeowners hesitated to sell, exacerbating the supply crunch and driving prices up. Leading economists predict that the Fed's hawkish stance will eventually stabilize housing prices, but a decrease is unlikely.

Zoning regulations and land use policies have significantly contributed to housing supply constraints, exacerbating the affordability crisis. These policies often restrict the development of multifamily housing and limit the density of residential areas, leading to a scarcity of housing units. For instance, in California, strict zoning laws have been identified as a key factor contributing to the state's housing shortage (Source: [1]). Additionally, land use policies that prioritize single-family homes over multifamily developments further exacerbate the issue, as seen in cities like San Francisco (Source: [2]). These policies have led to a significant increase in housing prices, making it difficult for many to enter the market.

Construction costs and labor shortages have significantly impacted housing supply and affordability. According to the National Association of Home Builders (NAHB), construction costs have surged by 20% since 2020, primarily due to material price increases and labor shortages. The NAHB reports that the average cost of a new single-family home has risen to $300,000, with labor accounting for 30% of the total cost. The labor shortage, exacerbated by the Great Resignation and immigration policies, has further driven up construction costs and slowed housing production. As a result, the housing supply has not kept pace with demand, leading to increased housing prices and reduced affordability.

In conclusion, the housing market 'thaw' never came in 2024 due to a persistent supply-demand imbalance, exacerbated by homeowners' reluctance to sell and stringent long-term supply constraints. Policies aimed at increasing housing supply have had limited impact, and more targeted approaches are needed to address affordability. The Fed's hawkish approach and interest rate hikes have not been enough to cool the market, and further intervention may be necessary to stabilize housing prices. Zoning regulations and land use policies, as well as construction costs and labor shortages, have contributed to the housing supply crisis, making it crucial for policymakers to address these issues to improve affordability and accessibility in the housing market.