As home sales and values dip, some U.S. housing markets are hitting a rough patch. With new construction homes rising, uncovering what’s driving these trends and what the future holds for the housing market is important for buyers and sellers.
Recent research by Redfin shows that nearly 64% of homes listed in May remained unsold after 30 days on the market. To understand the reasons, let’s dive into the heart of four major U.S. cities—Minneapolis, Cleveland, Pittsburgh, and St. Louis—each facing unique challenges that paint a broader picture of today’s national housing dynamics.
By understanding struggling U.S. housing markets and looking ahead, we can unravel the complex tapestry of factors influencing these markets.
A Closer Look at Struggling U.S. Housing Markets
Let’s analyze the factors affecting four major U.S. cities that provide a microcosm of what’s plaguing the U.S. housing market.
1. Minneapolis: Market Uncertainty and New Construction Struggles
Over the past year, Minneapolis has seen its housing market go silent. The local economy’s slow recovery from the pandemic and a sudden spike in the crime rate in some neighborhoods have driven down demand. Furthermore, the shift towards remote work has prompted many residents to seek homes in suburban areas or relocate out of state.
Challenges for new construction homes in Minneapolis:
- Escalating material and labor costs have made new construction homes less viable.
- Developers are exercising caution about greenlighting new construction projects due to fluctuating buyer demand, making it difficult to predict how quickly homes will sell.
- Economic pressures and market uncertainties have slowed many in-progress new construction projects or reduced their scope.
2. Cleveland: Tackling Affordability Constraints and Population Decline
Cleveland has dealt with a declining population and economic stagnation for years. While it is one of America’s more affordable housing markets, unique challenges have dampened enthusiasm among homebuyers toward the city.
Many potential buyers are put off by the city’s outdated infrastructure, limited job prospects and crime rate.
Challenges for new home construction in Cleveland:
- Builders are facing issues securing loans due to low demand for new construction homes, which limits new developments in Cleveland.
- Economic uncertainties and a shrinking population have made it challenging for builders to secure financing for new projects.
- The decreasing population directly affects the real estate market, with fewer individuals meaning fewer potential homebuyers.
3. Pittsburgh: Overbuilt and Under-Supplied Markets
The Pittsburgh real estate housing market has noticeably slowed, mainly due to it being overdeveloped. New construction homes began piling up within the city during the last decade, and a few areas of Pittsburgh reached an oversupply of homes. This caused a softening of prices and kept inventory levels high.
The proliferation of new home builds has caused market saturation with many homes remaining unsold.
Challenges for new construction homes in Pittsburgh:
- Oversupply of new construction homes
- Decrease in home values due to excessive inventory
- Stagnation in home sales caused by financial uncertainty, increased mortgage rates, and lowered demand.
- A saturated market where developers are hesitant to initiate new construction projects.
4. St. Louis: Economic Challenges and Inventory Shortages
St. Louis faces complex economic challenges that impact its housing market. A slow economy driven by a flat job market, minimal wage growth and heightened crime rates in several areas has prevented many potential homebuyers from entering the St. Louis housing market. Also, a notable shortage in housing inventory exacerbates the situation.
High construction costs and regulatory barriers have St. Louis builders hunkered down, turning very few lots into new homes. The constrained supply has kept prices high while discouraging buyers from purchasing homes.
Challenges for new construction homes in St. Louis:
- Few new homes are being introduced to the market, leading to a significant inventory shortage.
- Builders face high costs and regulatory hurdles, restricting their ability to respond to market demand and develop new construction properties.
- Economic and regulatory barriers slowing new construction.
New Construction Trends in These Cities
Despite the challenges, new home construction remains a focal point in these markets, and a means to improve the struggling U.S. housing market.
Here are some common trends emerging across these cities:
- Shift Toward Affordable Housing: Many builders are focusing on smaller, more affordable homes to meet the demands of first-time buyers and young families.
- Urban Infill Projects: Developers are increasingly turning to urban infill projects—redeveloping underutilized urban spaces—rather than building new subdivisions, which helps mitigate risks associated with overbuilding.
- Energy Efficiency and Sustainability: New construction homes in these cities incorporate energy-efficient features to appeal to environmentally conscious buyers and reduce long-term costs.
2024 U.S Housing Market Forecast
As we move through 2024, the struggling U.S. housing market shows signs of a slight cooldown. According to the latest S&P CoreLogic Case-Shiller Home Price Index, the annual gain decreased to 5.9% in May from 6.4% in April, yet prices still hit a new record high.
“Affordability continues to be the primary constraint on the real estate market,” said Lisa Sturtevant, chief economist at Bright MLS. “The market will move toward more of a balanced housing market in the second half of the year, but prospective homebuyers will still face competition.
Encouragingly, Zillow noted that 25% of its listings received price cuts in June, the highest for this month since 2018, signaling potential relief for buyers.
Mortgage rates tend to follow the benchmark interest rate set by banks for lending money. Similar to federal funds rate, which is at a two decade high, mortgage rates in the US have gone up significantly. This has led to serious affordability issues among borrowers .
What Lies Ahead for the U.S. Housing Market?
Over the next three years, the U.S. housing market is expected to undergo notable changes. Economic rescue efforts like government stimulus packages or mortgage relief programs and technological advancements such as AI-driven home search, as well as online mortgage platforms will simplify the process and make it easier to explore and purchase homes remotely.
Also, more people moving from cities to suburbs could lead to growth in the suburban housing market. As remote work continues for many companies and younger generations start buying homes, their decisions will influence real estate developments.
Furthermore, improvements in these markets can be made by implementing targeted economic policies and encouraging new construction projects to ensure supply can meet demand.
The resilience of the U.S. housing market over the next few years will hinge on the collective ability to recognize potential, create strategies, and act upon development opportunities.
FAQs
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Will the current U.S. housing market recover in major markets by 2027?
The recovery will vary by city. While some areas may see modest gains, others could face continued challenges depending on local economic conditions and market demand.
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Why is new construction development slowing down in certain U.S. markets?
High building costs, regulatory hurdles, and uncertain market conditions are the primary reasons for the slowdown in new construction in these cities.
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What can we expect for home prices in major markets over the next few years?
Home prices are expected to stabilize in many major markets including Cleveland and St. Louis. However, prices could fluctuate based on economic trends, mortgage rates, and changes in local demand.
