22 Jan

Why Housing Affordability Is a Growing Concern in the US

WRITTEN BY Peter Barnes

Series overview

In our previous series on the US housing market, we discussed the rising home prices, as well as the causes and implications for ordinary people and corporates. In this series, we will discuss how higher real estate prices are keeping housing away from the reach of median households.

Why Housing Affordability Is a Growing Concern in the US

Sharp rise in prices

On a national level, home prices have appreciated by over 17% during the past three years. However, the average is not a true reflection of the real picture in many major markets.

For example, the technology-driven San Francisco market has witnessed price appreciation of over 50% during the past three years. The prices in the San Francisco market are now touching the peak reached in 2005. Even the slow-moving Washington, D.C., market has experienced around 30%–40% price appreciation during the past five years.

Affordability is a growing concern

With the rise in property prices, housing affordability has become a growing concern in many markets of the country. High housing prices force people to the suburbs and rural towns to find affordable housing.

On the other hand, a high-priced market becomes unattractive to many corporates, who must move their operations to lower-priced regions or countries in order to curtail their operating expenses.

Opportunities to homebuilders

Rising home prices allow homebuilders like Lennar Corp. (LEN), D.R. Horton (DHI), and PulteGroup (PHM) to ramp up their supply to maximize profit.

Investors can take exposure to the residential real estate sector by investing in residential REITs like Equity Residential (EQR). The iShares Cohen & Steers REIT ETF (ICF) invests 6.7% of its portfolio in Equity Residential (EQR).

Continue to the next part of this series for a discussion on the basics of housing affordability

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