The Housing Crisis: Your Biggest Questions, Answered

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0:44That's why we make sure AI works with a connectivity fabric that permanently links people, applications, data, and machines everywhere and all the time. That's continuous intelligence. Later, he'll explain why it can bring cohesion to AI deployments. Hey, YMB listeners, it's Humani Moise for The Wall Street Journal. Your Money Briefing is on hiatus, but today we're wrapping up our special series on housing, one of the biggest financial challenges facing Americans today. This week, we've explored the forces driving the affordable housing crisis and potential solutions. But many of you still had questions, like, when will mortgage rates finally come down?

1:26And why can't we just build more suburbs? In the final episode of our housing series, What's News host Luke Vargas sits down with WSJ Real Estate Bureau Chief Craig Carman to separate fact from fiction and answer your biggest questions about America's housing market. That's after the break.

1:48Continuous intelligence is the ability to keep insights moving, turning signals into decisions and decisions into actions without losing context, momentum, or trust. That's the CTO at Comcast Business, Amit Verma. He believes continuous intelligence and operating posture linking people, applications, data, and machines is critical for AI success. It's important to have an integrated system that can power AI workflows with a flexible connectivity fabric and machine speed threat intelligence.

2:27Craig, in recent days, we have looked at the U.S. housing shortage from a number of different angles here across our podcasts, from difficulties facing towns, difficulties facing builders, and of course, to the many challenges facing buyers. We've also looked at some ideas about how to fix both sides of the supply-demand equation in housing. However, our listeners and journal subscribers have had a lot to add into the discussion, some areas as well where they would like additional clarity on things. So let's address some of those questions and start with a big one, a topic that has spurred quite a lot of debate across our coverage.

3:01Are immigrants living in the U.S. unlawfully worsening the housing shortage? In 2024, Donald Trump pledged to ban immigrants who are in the U.S. illegally from getting mortgages. Last year, Vice President Vance claimed that they were, quote, taking houses that ought by right to go to American citizens, end quote. Craig, what's the situation here? Yeah, it's a complicated question. And you're right, it's become a highly political one. And there was a study from the Urban Institute, a think tank in 2023, that said home loans to undocumented immigrants living in the U.S. are legal but not very common.

3:40There was around 5 ,000 or so mortgages to undocumented immigrants. And consider that is out of a total that year of about 3.4 million mortgages for home purchases. On the rental side, it's a bit more complicated, and there's potential for impact there. The Pew Center said that undocumented immigrants lived in a little more than 6 million households in the U.S., rental households, and that's about 10 percent of all the rental households. And there's other dimensions of this as well, right? Construction as an industry employs a lot of immigrants as well. Deport them. I don't know, do construction pressures worsen?

4:21Because that kind of ties into another comment we received, which was, you know, pointing out another topic in the headlines these days, tariffs on steel and aluminum, sort of implying there, you know, maybe this administration's policies are sort of sabotaging efforts to make housing more affordable on a wholly different front. I think they are to some, they're not the driving factor. The National Association of Home Builders said that tariffs, which includes stuff like steel and aluminum, added about$10 ,000 to the cost of building a new home. And when you consider that the average home costs about$400 ,000 to build,$10 ,000 adds to it, but it's not a huge driving factor.

5:07I think in the end, the cost of land, the cost around permitting, infrastructure requirements, conforming with zoning restrictions and building codes, those tend to be bigger factors pushing up the cost of housing. And as you were alluding to earlier, labor costs are rising. And with a lot of construction companies relying on immigrant labor and often undocumented labor, it's getting tougher to find people to work on their construction sites. And that is pushing up the cost. All right. Let's shift to once homes are built, Craig, because we got some questions about how they should be used. This is something that listener Ian Kennedy from Rhode Island highlighted about a property that he was considering selling.

5:52Let's hear from Ian. Given the recent rise in mortgage rates, I'm much more leaning towards opting to try to rent it out. Not much new inventory coming on the market here, not much new construction coming on the market here. So the rental option just seems like a better long-term plan. Craig, this sort of own versus rent dynamic is something we've covered throughout our housing series. all of this hits at the central point of the housing supply, in air quotes there, isn't a monolith. Whether it's Ian making decisions about what to do with his property or millions of other individual owners and landlords, everyone's just trying to maximize their returns.

6:28How much can you truly shape what the housing supply looks like when it rests with so many individual decision makers? That's right. I mean, I think what both local and federal governments are trying to do is spur more supply through new construction. But the existing home market counts for about 90 % of all housing transactions. So that's really where it lives or dies in terms of supply. This market, this housing market has been stuck in a sales rut for more than three years now. We're sort of going on three and a half years. And while supply has been rising in recent months, for the most part, we've been dealing with an undersupplied market throughout much of this housing slump.

7:11What housing economists define as a balanced market between supply and demand is when you have about four to six months of supply for sale on the market. That means if no new homes were listed, it would take about four to six months to sell existing inventory at the current price. In 2021, there was only two months of supply on the market. And a big reason for that is interest rates fell to their lowest ever and mortgage rates were around their lowest ever. A lot of people who had higher mortgage rates refinanced and you had something like 30 million households with mortgages below 4%. And that was more than half of all the mortgages in the U.S.

7:55And when you have that, people are very reluctant to sell. and they may do stuff like the caller was talking about, which is maybe I'll just rent it out rather than sell it because I have such a cheap mortgage. And that seems to be one of the big issues. Now, things have been getting a little better. That supply figure is up to around four and a half months of supply. One thing I have seen in Congress, it's called the More Homes on the Market Act, is an effort to try and goose supply back into the market, not by building new homes, but by getting existing homeowners to list. And the idea behind this is they would double the amount that home sellers could exempt from capital gains to half a million dollars for single tax filers and a million for those who are filing jointly on their tax returns.

8:43The idea is that, yes, you would be giving up your mortgage rate, but if your capital gains tax was considerably less, that would ease some of the financial burden and that would make more people willing to list their home and bring supply back into the market. All right. So maybe a little movement or things that can be done to juice the existing home segment, though, that system that still sounds pretty clogged up from what you're saying. So let's shift then to new construction, which people do believe can be steered. It's just a question of where is it steered? As we heard in the first episode of our series on housing, Menlo Park, California, they want density.

9:19This was a a big feature of sort of their push for new housing. But this led subscribers to ask, why is there so much focus on high density and comparably less talk about expanding the suburbs? Others piled in on this same topic saying the American dream is a single family house with a yard and certain politicians keep reframing the housing issue away from that. The suburbs are sort of a complicated housing situation for the U.S. If you go back in the years prior to the pandemic, suburbs in a lot part of the U.S. were falling out of favor, particularly in the Northeast and the Midwest. There was no new building there or very, very minimal.

10:00People were not seeing a lot of job growth and they were leaving for warmer climate and places where there was more job opportunities. During the pandemic, when people were stuck at home, there was suddenly a housing boom in the suburbs, particularly suburbs of, say, New York City and New Jersey, Westchester County, New York, Connecticut. And homes there were surging in price. There was still no new supply because of not a lot of room and because the NIMBY issue in the suburbs is very strong. I think that NIMBY dilemma for the suburbs remains, so there's still not going to be a lot of density out there.

10:44The demand for suburban homes has cooled off a bit in recent years as more people are going back to the office. So the idea of your hour-and-a-half commute in each direction becomes less appealing. But I haven't seen many suburbs that have sort of solved the issue of welcoming more housing. I think a lot of developers would like to do is build an apartment tower with 100 or more units. And a lot of these suburbs, even building a duplex, so a home for two different families living side by side in an area zoned for single family housing, gets a lot of pushback. So I don't think we're going to see much change in those dynamics anytime soon.

11:27And it doesn't necessarily get any easier in a rural community bordering the suburbs, right? I guess maybe the listeners and readers were sort of suggesting let's just push the suburbs further out into just where there is no housing now. But that would require those voters and town stakeholders to decide they want their bucolic existence to be turned into a new suburb, which is hardly a given, I imagine. That's right. Right. I think the same issues echo when you go out from the suburbs to what is sometimes referred to as the exurbs, which is the area outside of the suburbs that are a little farther away from city downtowns, a little bit cheaper than the suburbs, a little bit easier to build because I think there's a lot more open space, but some of the same issues as you alluded to.

12:13And because you brought up affordability there, I think we should close on that issue, one we got so many comments about, including this one from recent college graduate Jason from Omaha. Let's hear from him. Most people are getting jobs in the range of$50 ,000 to$75 ,000, which anyone I know that has a rep payment of around$900 ,000, which is pretty normal out here, they're not putting away any money. And it's not just bad because of the down payment on the house, but you also have to think about being able to keep up with those monthly payments. And I just don't foresee people's wages rising at the same level as the cost of living is.

12:53Hearing that, Craig, it makes you wonder if really anything can get the housing market working again until rates come down, especially relative to wages. though plenty of journal subscribers we should mention also argued it was ultra low rates that teed up the financial crisis. Arguments to be had on both sides here. But broadly speaking, is everything else in the housing discussion, Craig, just set dressing compared to mortgage rates? I would say in a word, yes. I think mortgage rates are always a critical component to affordability, which is primarily a measure of home prices, incomes, and mortgage rates.

13:29I think they're especially difficult now because of this lock-in effect we were talking about earlier. And suddenly you have all these people who are motivated to hold on to their homes, pushing prices up higher and higher, even if the rate of price acceleration is slowed. I mean, home prices have gone up 35 consecutive months now. The median home price is over$400 ,000. If you put 20 % down, that means you need$80 ,000, which is tough for a first-time homeowner to come up with. So it really comes down to mortgage rates as the variable that could make housing a bit more affordable for more Americans.

14:08And unfortunately, right now, it's tough to think of a catalyst that could meaningfully bring down mortgage rates. And the only thing that I could really think of at the moment that would seem certain to bring down mortgage rates would be a severe economic slowdown or recession. in which case then rates would have to come down in response to that. The problem is slowdown in the economy and a recession are not very conducive to a strong housing market. And when people are worried about their job, they tend not to do big-ticket purchases. Nothing is a bigger-ticket purchase for most people than buying a home.

14:46And when people are worried about that, it doesn't really matter where mortgage rates are. Craig, if I wanted to end on a positive note, I guess I should have asked you a different question, huh? I think that's right. Unfortunately, we're a bit stuck for the moment. We can't change reality, but I appreciate you bringing us so many insights and responding to our listener questions. I hope everyone else is as well. Craig Carman is The Wall Street Journal's Real Estate Bureau Chief. Craig, appreciate you. Thank you so much. Thanks for your time. Appreciate it. And that's it for this special episode of Your Money Briefing.

15:20This episode was produced by Hattie Moyer with sound design by Michael LaValle. Our supervising producer was Sandra Killhoff, and I'm Luke Vargas. To round out our housing coverage, tune in on Sunday for a special USA 250 episode on the state of the American housing dream. That's Sunday in our WSJ What's News podcast feed. Until then, thanks for listening and so long.

15:47To develop continuous intelligence, enterprises must address technical debt from legacy systems, cross-functional misalignment, data security, and data quality. As Comcast Business CTO Amit Verma notes, it's not easy. AI agents generate a lot of data and they need low latency for inference. So the biggest challenge is having a robust infrastructure where you can pass data between agents and your large language models at a low latency speed so you're not slowing things down. As leaders create an environment for data to move seamlessly, they must also manage risk. Governance must be built into orchestration, workflows, and AI systems from the start.

16:29Guardrails, auditability, and the clear ownership of data and tools need to be developed. Visit ComcastBusiness.com slash Enterprise to learn how Comcast Business helps enterprises navigate an ever-changing technology landscape. This content was created by Custom Content from WSJ, a unit of the Wall Street Journal Advertising Department. Still running global payroll like a relay race? Deal replaces fragmented payroll vendors with one global system. No third parties. Hire, manage, and pay teams in 150-plus countries with in-house local experts and white-glove delivery. And Deal plugs into what you already use, Workday SAP NetSuite.

17:07Operate like a local everywhere. Visit deel.com slash WSJ. That's deel.com slash WSJ.