All Into Account: No Quick Fix for US Housing Affordability - Affordability Challenges are Reshaping Markets

Hello, this is Joyce Chang, Chair of Global Research at J.P. Morton. You're listening to all into account our Global Cross-Assets Strategy Podcast where we break down the key trends impacting financial markets. Housing affordability is one of the most persistent and most consequential post-pandemic cost of living challenges. U.S. mortgage rates are now topping 7% as Treasury yields have risen, putting an even deeper squeeze on housing affordability. We've just published our annual housing report, coordinated by Mohammed Jose, who is on my strategic research team, and the takeaway is that affordability is at a critical inflection point across many global markets. In the U.S., the core issue remains a chronic shortage of homes relative to demand, even after a period of unprecedented household wealth gains, and the passage of federal legislation to boost housing supply and lower costs. Buyers are still being priced out as higher mortgage rates, elevated monthly payments, and rising ownership costs continue to strain affordability. And importantly, this isn't just a U.S. story. Housing affordability is a global phenomenon, but the constraints differ market to market, which means the solutions have to be localized. So today, we're going to unpack what's driving the affordability squeeze. What policy can realistically do, and what we're watching across the housing and commercial real estate markets, Mohammed, over to you. Thank you, Joyce. It's great to have our research colleagues, John, Chong, Anthony, Bennett, and Arjun, as well as JP Morgan's head of commercial real estate, Michelle, join us for this discussion. We have a cross section of experts covering housing from the macro markets perspective, real estate developments on the ground. We'll start with the supply demand imbalance in U.S. housing, move to who's being impacted and how, touch on the new home sales market and financing conditions, discuss recent federal policy, then broaden out to commercial real estate, then we'll close with the spill-over effects to corporate credit, and what JP Morgan Chase is doing to support housing supply and affordability. So John, let's start with the supply shortage. How bad are housing affordability dynamics versus history, and how big is the housing supply deficit versus demand? What actions need to be taken to meaningfully address the supply side and unlock the housing market and restore affordability? Thanks. Thanks for the question, and thanks for having me, Mohammed. So when you talk about affordability, we definitely are at one of the worst levels since the financial crisis. One way you measure that is just the cost of income. In other words, the cost income for the renter to purchase the median price home based on the median income is roughly around 50% of their income, so that's a real challenge and you haven't really seen that since the financial crisis. The big dynamic is around, additionally, is around current mortgage holders, which where their cost income is only around 20 to 25% of their income just due to them being locked into very low mortgage rates. So part of the problem, obviously, is elevated mortgage rates in terms of affordability, construction and labor costs, which keep the build costs high, so the current new construction is also challenging, and then you have rising insurance and property taxes as a challenge. So we are in a frozen market, and we talked about that just a second ago with just the rate dynamic. One interesting statistic is that 75% of borrowers have mortgage rates below 5%, and if you step down to say the 4% mortgage rate, then it's 55% of borrowers. So then you also mentioned about the supply shortage, and when you take all that household formation that's accumulated, all the new builds that have accumulated as well, you get a net number of about 1.2 million. So that's what we would call a real structural shortage, where you just don't have enough homes. Now, that is mostly concentrated in the Northeast and sort of middle America, very, very concentrated towards the Northeast coastline though, until you start to get further south towards South Carolina, Georgia, Florida, these areas, where you actually are starting to see supply and excess of pre-pandemic levels. So how do we unlock supply? Unfortunately, it's more of a thaw than a melt income growth, lower mortgage rates, if you get some calm in the markets, there's a glide path towards lower rates to about 25 basis points. You also have capital changes that are happening in the large banks that benefit 60 to 80 TV lending. So we think that that's from Basel III in game, which should be materializing into the end of the year and into next year. So that could save, skim off another 25 to 40 basis points. So all you're talking 50, 60, 70 basis points, there's a glide path towards that number, and nothing has to happen to the 10 year, and I think that's really important because if you do start to eventually get a 10 year lower, then you get an even lower number. So we could be looking at mid to those 60s at some point in 2027, so that helps a lot. Price, you know, you're already seeing price corrections in some parts of the country, where there's oversupply, think Florida, Texas, some segments of California, et cetera. And then really the last bit is just the equity market, the wealth effect is a very, very dramatic effect that I think we haven't seen quite some time where just if you've been waiting to buy, but you're up 30%, 40% on your stock portfolio, you can buy down your own rate, you could put a bigger down payment down, so that does help with the needle a bit. With supply the bottleneck, let's look at the household impact. Bennett is home ownership still realistically part of the American dream for the average household, who's being hurt most by the housing affordability crisis, and how are renters fairing compared to homeowners? I think the fact that this question has moved to the forefront reflects how much affordability is constraining choices for many households. Let's start with the headline number. The national home ownership rate sits at 65.2%, it's actually still above where we were in 2019 before the pandemic. It shot up during the pandemic thanks to a rare mix of ultra low mortgage rates, a savings buffer from stimulus and reduced spending, and remote work pulling forward household information and demand for space, peaking nearly 66% in early 2022. Since then, the direction though has been generally down. What has happened is that home prices never meaningfully corrected even as the fed rate hiking cycle that kicked off in 2022 cooled demand. The supply shortage that John Sim touched on earlier is largely to blame there, so today's buyer faces both high prices and high financing costs at the same time. The ownership for the under 35 cohort has performed the worst over the most recent period, dropping from 39% in early 2022 to a nine year low of 35% as of the latest data. As to your question on the cost of owning versus renting, it's important to keep in mind that when we say renting is cheaper than owning, and when we say housing is affordable, that these are two different statements. The first is a monthly cash flow comparison. The second is about whether housing costs are sustainable against incomes. Right now, the first is true in most of the largest youth metro areas. You can see this in elevated price to rent ratios, and the second has been deteriorating for some time. Affordability is fundamentally about housing costs relative to incomes, and this is where the picture is most troubling. These costs have outpaced income gains for much of the last 25 years. Over that period, median household income has grown at a meager or tenths annualized pace, while median home prices and rents have grown at 1.7% and 2% respectively. That's the real problem, incomes have simply failed to keep up. So, let's now take a look at what this all means for new construction. What is the outlook for new home sales as buyers are being hit with rising financing costs with mortgage rates near cent per cent, and at the same time, home builders sensing it is that until year lows amidst soft demand. New home sales had a disappointed spring-selling season, and it looks like that weakness is persisted through the summer. On the demand side, with mortgage rates around 7% now, we see affordability squeezing buyers hard, and as a result, builders are relying heavily on incentives to generate demand. On the supply side, builders are contending with high material costs, rising energy prices, and persistent labor shortages. Many have also cited tighter construction, labor availability, tied to stepped up immigration enforcement. Again, this backdrop, compounded by the demographic headwind from slowing household reformation, we expect the pace of new home sales to progress that around 630,000 annualized pace in the second half of the year. That would be down from something closer to 680,000 on average in the prior few years, so a significant slowdown. I'd like to now turn to policy as Congress is trying to move the needle on housing affordability. Tony, Congress recently passed a landmark housing reform package called the 24th Century Road to Housing Act, which recently became federal law with bipartisan support. Will it have a material impact on improving affordability or expanding supply? What are the most meaningful provisions and where does it fall short? What does this legislation mean if anything for institutional investors and the single family rent market? Okay. Thanks, Mohamed. Well, the short answer to the first part of your question is no in the near term. We don't think the road act in and of itself will have a material impact on improving affordability or expanding supply quickly, and now a large part of that is because the simple economics of development for many types of housing are difficult to pencil for developers and builders right now. So that's still the elephant in the room. But that's not to say the bill was not important or did not have key features to it. It does. It has both of those things. I would say the three items that stand out to me that encourage supply in the bill are number one, their provisions that give banks a bit more latitude to lend into the affordable segment. And that's where a lot that supply is needed. So that's good. Number two, there are a variety of incentives from the federal government to be given to local governments as part of this bill to help with construction and in zoning initiatives to encourage more supply because what happens at the local level with zoning is critical to greasing the skids to add more supply to housing. And number three, a part of the bill that I think could have some real teeth to it is the removal of the chassis requirement and manufactured housing. I think this is a part of the bill that didn't get a lot of attention, but it could potentially be meaningful. And so removing the chassis requirement and manufactured housing can make that segment of housing look much more akin to modular housing. And it opens up the possibility of multi-story manufactured homes, lower costs to build these faster delivery times, and frankly much nicer aesthetics that are appealing to consumers. So I think that's a part of the bill that shouldn't be overlooked. Now, on the single family rental side, I didn't put that into the positive bucket necessarily because there were still restrictions put in place on institutions participating in the single family home rental market. But that said, the important item is that it did not put any real restrictions on building new homes to be rented. And that's key. Most of the largest institutional participants in the single family rental business have already pivoted toward the development of new rental homes. So allowing them to continue to do what they have been doing is good news and as an important part of the bill. But it doesn't necessarily bring about incremental new supply. It just took the concern that that outward of supply would be shut down. It took that concern out of the mix. So let's widen the discussion to the commercial real estate market. Chong, it seems that the market has moved past the worst of its distress, yet the recovery remains uneven. How would you characterize where we are in the cycle and what separates the markets that are improving from those still struggling? How close are we to a genuine supply demand rebalancing? And what would that mean for rank growth and investment opportunity going forward? Thanks. I appreciate the time. I definitely agree that commercial real estate market has moved past the worst fears, which really keep during the regional bank's stress crisis of 2023. The concern then was that a large volume of betraying loans would be forced to fence into a much higher rate environment, which would trigger widespread defaults and damaging balance sheets. Fast forward today. And thankfully, those worst case scenarios did not transpire. There have certainly been defaults and losses, but loan modifications and extensions bought borrowers' time and helped avoid foreseals. That time allowed capital markets to stabilize, refinancing activity to resume and recapitalizations to take root. As a result, three financing conditions have improved significantly, particularly on the debt side where a capital is broadly available. That said, the recovery remains highly uneven across probably types. The distinction largely comes down to the relative influence of cyclical factors versus secular trends. Office, for example, remains the clearest example of a sector facing a structural challenge from hybrid and remote work. High quality buildings and prime locations are benefiting from attorney office trends, while many lower quality assets are facing functional obsolescence and will likely require redevelopment or alternative uses. Multi-family by contrast has been dealing with a cyclical oversupply problem. Strong population growth in sundial markets, for example, and exceptionally low borrowing costs encouraged a waveling construction. The good news is that deliveries are now slowing pretty meaningfully, and we believe the sector broadly turned a corner earlier this year around Q2, as supply pressures continue to ease. Consumer facing sectors such as hotels and retail have generally held up well due to a fairly strong consumer, although properties tied to lower income consumers are seeing some softness. Industrial warehouse properties, they continue to benefit from e-commerce and broader beauty industrialization trends, so this is more of a secular trend, while demand for a warehouse space is also being supported by the build-out of data center infrastructure. Data centers, of course, remain the standout both story and commercial estate, and arguably more of a commercial real estate adjacent sector. But this is a sector that is among the few segments in theory that are experiencing broad-based vio rent growth, supported by exceptionally tight bond conditions, and strong secular demand. Thanks, Chong, for that perspective, and now let's talk about the spillover or effects to corporate credit. Arjun, how has corporate credit been impacted by housing affordability pressures? We have seen resilience and investment-grade housing credit, both in the home-builder space and across-building products. Spreads continue to hold in due to balance sheet strength and corporate flexibility, as the market takes the view that companies have time to endure near-term pressure and be beneficiaries of an inevitable cyclical recovery. In high yield, we have seen underperformance through the balance of the year. In housing, as higher-leathered lower rate the names have decompressed from the rest of the space. As margins remain under pressure due to elevated incentives, increased construction costs, the tightening labor market, we expect fundamentals in housing to feel further strain from high interest rates into the end of the year. Within the home-builder space, we expect luxury builders to exhibit the most resilience given that their customer is less rate sensitive and incentives are less of a consideration to get buyers across the finish line. Strength in the equity market, combined with overall economic growth and job formation, have lowered debt-to-income ratios, providing a mitigating factor to consumer affordability pressure in our view. That's really helpful context, Arjun. Now I want to shift to what it takes to really increase housing supply and improve affordability. Michelle, let's talk about execution as you're at the center of housing finance, and JP Morgan Chase is the largest multi-family lender and leading residential mortgage lender. Can you walk us through the building blocks necessary to increase housing supply? How is JP Morgan approaching this through the American Dream Initiative? What are the top priorities and where do you see the greatest opportunities to deliver your term results? Sure, I'm happy to. We think housing is an essential part of the infrastructure for economic growth. It is largely a local issue, much of the policy work that sets the opportunity to create more housing in a local market is set by the local public officials and framework. What we announce this year, Tina Bigg step back, looking at the fact that the US needs more housing, we're the largest commercial real estate lender. We are the largest residential bank mortgage lender. We are the bank that is most likely to be the bank and local partner to government at all of these levels, federal, down to the smallest local. We know a lot in our body of everyday work, and we wanted to get more involved with creating the solutions to ultimately create more housing across the country. And so as part of the firm's broader American Dream Initiative, as the housing access and affordability pillar, we have announced an intention to deploy 750 billion of debt and equity capital to creating more housing supply at all income levels to match affordability needs across the country over the next decade. Specifically, within that, we want to make sure that we are helping the construction and preservation of over a million affordable units, which we define affordability as housing is local, and income goes to a different amount of support, depending on the dynamics of the local market. So we say affordability is a local and affordable units. We consider to be under 120 percent of that average median local income. We also are committed to helping home buyers in a way that is bigger than we've ever done before. 500,000 customers, we will help purchase homes, including 200,000 first-type home buyers. We are going more local in our advocacy, you know, advocating and working with again those local public official clients of ours to help grow growth housing policies by reducing barriers to construction, accelerating some production, and unlocking new levels of feasibility and affordability to help their communities be stronger than ever. What does that mean? you may ask and so certainly there are different types of housing. in their single-family homes. There are complex homes. There are multi-family units, apartment buildings, of different size and scale. We believe that more supply helps create affordability. And we also are very encouraged about what's happening in the manufacturing housing space as a way to more quickly put up places for people to live in various communities around the country. It's a heavy body of work, but a place like J.P. Morgan Chase and proud to be a part of the team that's committed to driving results in this area. Thank you, John, Benet, Anthony, Sean, Arjun, and Michelle for walking us through what's driving the housing affordability crunch, what policy can and can't do, and where the market may be headed next. And I want to thank all of our listeners for joining us today. Stay tuned for more episodes of All Into Account, J.P. Morgan's global research podcast series as we explore the key macro and market trends impacting financial markets. Thank you to all of our listeners for joining today. This communication is provided for information purposes. Only please read J.P. Morgan's research reports related to its content for more information, including important disclosures. Copyright, 2026, J.P. Morgan Chase and Company, all rights reserved. This episode was reported on September 28, 2026.