Former housing secretary urges homebuilding push amid 'worst affordability crisis ever’
The American dream of homeownership has turned into a nightmare for millions, as the nation grapples with what the former housing secretary is calling “the worst housing affordability crisis we've ever seen in this country."
In a CNBC interview on Tuesday, Shaun Donovan, former U.S. Secretary of Housing and Urban Development, laid bare the alarming state of America's housing market.
"We had 18% year-over-year increase in rents, home prices rising at levels we've never seen. So we are seeing some leveling off, but it’s at a level that is well beyond what folks could afford,” Donovan explained.
The National Association of Realtors reported in May that median existing home sales price reached $419,300 - the highest ever recorded.
Meanwhile, the average 30-year fixed daily mortgage rate has climbed to 7.08%. Even the rental market offers little reprieve. According to Zillow, the median rent for all bedrooms and property types stands at $2,150.
The supply crunch is crushing households
Donovan points to a critical housing shortage as the root cause of the affordability crisis, estimating a staggering shortage of 5 to 7 million homes. "This isn't just going to turn around by itself," he warned, emphasizing the urgent need for action.
"We have too little housing in this country, and we've got to build more," he said.
The consequences of inaction, Donovan stressed, could be dire. He cited a sobering Harvard University report that found one in four homeowners are already "stretched worryingly thin" financially.
Even more alarming, half of all renter households are considered cost-burdened, forced to allocate over 30% of their income just to keep a roof over their heads. This is "a level that we’ve never seen before in terms of the affordability crisis,” said Donovan.
Interestingly, however, not all experts agree that increased supply alone will solve the affordability crisis.
A recent study from the University of Kansas and The New School challenges the housing shortage narrative, suggesting that the real issue lies in the widening gap between incomes and housing costs.
Housing is still a major driver of inflation
The housing crisis extends beyond individual households, rippling through the broader economy as well.
"The primary thing that's driving inflation today is housing prices," Donovan said.
Despite signs of a cooling market—slowing price increases, slightly lower mortgage rates, and flattening rents—Donovan warned that we're not out of the woods yet. Just because the market isn't as red-hot doesn't mean we're back to where we were before the pandemic.
Instead, we're settling into a new normal where prices are much higher, and this continues to push overall inflation up.
Andy Walden of ICE Mortgage Technology offered a tempered outlook, projecting a "neutral housing market for a couple of years" nationally, even as some pandemic boomtowns like Austin experience price drops.
This aligns with varied industry forecasts. Zillow anticipates a slight 1.2% price decline by May 2025, while Moody's and Fannie Mae predict modest increases of 0.4% and 1.5%, respectively.