The State of the Nation’s Housing 2022 report from the Joint Center for Housing Studies of Harvard University, released on Wednesday, June 22, found that soaring prices keep prospective homebuyers in rentals. While residential construction starts are at levels not seen in decades, affordability and supply-chain issues could see a cool down in the market for 2022.

The State of the Nation’s Housing 2022 report from the Joint Center for Housing Studies of Harvard University was released on Wednesday, June 22.

According to the report, home prices rose in 2021 due to an imbalance between supply and demand in the market. The year-over-year rate of price appreciation reached an all-time high of 12.7%, with early 2022 showing home prices 38.6% above pre-pandemic levels. The report cites underbuilding as a significant factor in that increase.

At the same time, for-sale inventory is at an all-time low. The study found that only 850,000 homes were on the market to start 2022, a 17.5% decrease from January 2021.

“In the current market, the number of households with sufficiently high incomes and savings to buy homes far exceeds the for-sale inventory in places where people want to live,” the study found. “Historically low-interest rates in much of 2020 and 2021 also played a large role, allowing buyers to bid up prices while still keeping their monthly payments affordable.”

But those factors also resulted in an increase in housing production in 2021, with starts rising 16% to 1.6 million units. The Northeast experienced the most significant growth at 22.4%, followed by the West at 17.5%, the South at 15.3% and the Midwest at 12.5%.

“The building boom lifted the number of homes under construction above 1.6 million units in April 2022, up 24% from a year earlier and the highest total in records dating back to 1970,” the study reads.

Harvard also cites the Joint Center’s Leading Indicator of Remodeling Activity to report that home improvement and repair is rising. Homeowner expenditures rose by more than 11% to $391 billion in the first quarter of 2022.

“As a result, residential fixed investment—which includes spending on home improvements, manufactured housing, and brokers’ commissions as well as new construction—accounted for some 4.7% of gross domestic product last year,” according to the study. “This is a notable increase from the 3.3% average annual share in 2008–2020 and even exceeds the 4.4% share averaged since 1970.”

But there remain many renters who are unable to enter the market. The study’s authors say that rent increases, from 0.8% in December 2020 to 16.2% in December 2021, make it difficult for prospective buyers to save for a down payment.

Material prices and availability also continue to pose obstacles for the market. Price inputs for new residential construction were up 20% in February 2022 compared to the same period one year prior. Supply chain issues resulted in more than one-fifth of homebuilders reporting severe shortages of windows and doors in March 2022, which pushed out completion times.

While housing completions are projected to quicken as the year goes on and supply chain issues come under control, the study notes that addressing the housing shortfall will require high levels of activity in the years to come.

“To do so will require the collaboration of local, state and federal officials in removing some of the regulatory barriers to higher-density residential development,” according to the study.