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There's a shortage of new homes in the US: Realtor.com

Sarah Paynter
Reporter

This article was originally published on Yahoo Finance.

The U.S. housing market is short 3.8 million new homes, according to a new Realtor.com analysis.

Some 9.8 million new households formed from 2012 to 2019, but only 5.9 million single-family homes were built, leaving a significant shortfall. Sales are predicted to decline in 2020 because of the supply shortage, according to the report.

“Buyers coming into the market are going to find that they are facing problems not only what builders can build but what other buyers are lining up for, who have been waiting longer than they have,” said Javier Vivas, director of economic research at Realtor.com.

There have not been enough new homes on the market since 2014. Graphic by: David Foster.
There have not been enough new homes on the market since 2014. Graphic by: David Foster.

Homebuilder confidence reached a two-decade high of 76 at the end of 2019 due to lower interest rates and a healthy, growing economy, compared to its previous peak of 72 in 2005, according to the Housing Market Index by the National Association of Homebuilders and Wells Fargo.

Single-family starts reached 7.3 per 1,000 households in 2019, its highest rate since the Great Recession, according to a recent report by Department of Housing and Urban Development and Department of Commerce.

Starts previously peaked in 2005 at 15.5 starts per 1,000 houses — revealing that there is still room for growth in homebuilding speed. Construction was one of the slowest industries to rebound from labor losses during the Great Recession.

Even with the above-average pace of construction, economists estimate that filling the gap would take four to 10 years, depending on the construction rate, according to the report.

“If 2020 is what we expect, it should take a full decade for builders to come up to equilibrium. They have no reason to continue to build faster because household formation is decelerating. So they’re going to be very cautious,” said Vivas, leaning toward conservative estimates.

The report also noted that construction needs to occur at the right price point — while luxury homes offer the greatest profits for developers, the greatest need in the market is for low-cost homes.

“Builders have learned the hard way in the last three to five years that they have to build at the right price point. They’re a lot more focused and experienced now at targeting customers with the right product,” said Vivas, who said scarce land availability attracted builders to construct high-profit, luxury products, which proved difficult to sell because there was more demand for low-to-mid priced properties.

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