The biggest story in real estate is as ever the seemingly un-stoppable housing market. With supply so low and demand so high, it is a truly unprecedented time. If we look back in history, what are some of the sources of the current state of the market? And what implications does that have for the future?
Writing in an opinion piece for Inman, Ben Caballero of HomesUSA explores the origins of the current housing shortage by looking at one particular data set, the U.S. Census Bureau data on new housing starts.
Ever since 1959, the U.S. Census Bureau has recorded the number of housing starts every year. Caballero divides this data into two distinct periods, 1959-2006 and 2007-2020. The source of this particular periodization is of course the Global Financial Crisis of 2007 which hugely damaged the building sector in the United States.
In the first period, from 1959 to 2006, there were a total of 52,941,000 new homes built in the United States, for a yearly average of 1,102,938. Compared to this “historical average,” the last fourteen years have had a much weaker showing. There have been a total of 9,914,600 housing starts since 2006. That means that on average, builders have completed 708,186 per year for the last fourteen years.
Thus, compared to the historical average, building has never caught up to the production of homes from before 2007. There is a “shortfall” of construction, as Caballero puts it, to the tune of 5,526,525 homes. Extrapolating from this, Caballero argues that it may take as many as 13 years to make up the outstanding deficit of supply. Even if the rate of housing starts were to rise to the incredibly high rate of 2 million new homes per year, it would still be 6 years before the country had enough homes to meet current demand.
This projection paints a fairly bleak picture of the current state and future of the market. Lack of supply has caused such issues as rising prices and intense bidding wars, which have in turn driven a great deal of buzz about the possibility of a housing bubble in the making. But it should be added that, as usual, the situation is not quite so simple.
Complicating factors such as the soaring price of lumber and the rumblings of potential inflation may do a lot to cool down the redhot market. While Baby Boomers have dried up supply by holding onto their homes into old age, a declining birthrate in the United States will certainly mitigate demand for housing over time.
This all comes with the general caveat that no one can see the future. Such predictions are essentially impossible to make for even the most distinguished of industry leaders. There are simply too many forces and factors to account for when trying to predict a system as complicated as the U.S. housing market.