Housing Shortage and Rent Demand

By now, you may have heard there is a housing shortage which is one of the reasons that housing prices and rents have gone up over the last few years. Fannie Mae (Federal National Mortgage Association), is a United States government-sponsored enterprise. They anticipate 1.6+ million housing units are needed each year from 2020-2030.

Housing Shortage

In 2020, it was estimated more than half (52%) of people aged 20-29 lived at home with their parents or guardians. This is unprecedented. Even during the Great Depression (43%) and WW2 (48%), less people aged 20-29 lived at home. When this demographic moves out, there will be an even higher demand for housing. Baby Boomers, born between 1946-1964, are leaving their homes as they want to downsize. Some are buying smaller homes or condos, while others decide that renting is a great option since they do not have to do repairs on the property.

Fannie Mae estimates about 16 million housing units are needed for this decade to keep up with demand. We are only on pace to build 11.5 million units. That creates a deficit of 4.5 million units for this decade, which we are already in a large housing deficit. The demand for housing has not even reached its peak.

Interest Rates

As interest rates rise, the buying power is reduced. For example, at 3.5% interest rate, you can spend $1500/mo in principal and interest and get a home that is $334,000. At an interest rate of 4.5%, for the same $1500/mo, you can afford a home that is worth $296,000. At 5.5% and a $1500/mo payment, the home is valued at only $264,000. More people will continue to rent as interest rates rise.

With a shortage of housing, increasing demand, and rising interest rates, the rental market is not even close to reaching its peak.

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