Freddie Mac – US 3.8M Homes Short

Key Highlights

• Supply and demand gap widened in past two years
• According to Freddie Mac, +52% rise in nation’s home shortage compared with 2018

Supply – Demand Gap in US Housing Widening

In a new analysis by the mortgage-finance company Freddie Mac, the estimated supply and demand gap in the US housing market over the last two years has only gotten worse.  Just ask a potential homebuyer.

Freddie Mac’s last analysis indicates an estimated +52% increase in the severity of the housing deficit in this country compared with 2018.  This estimated 52% translates into 3.8M single-family homes.  This ever increasing lack of supply is particularly acute for first-time homebuyers hoping to enter the market with an entry-level home.

Decade of Under-Building

According to Sam Khater, chief economist with Freddie Mac, “We should have had almost four million more housing units if we had kept up with demand the last few years.  This is what you get when you under-build for 10 years.”

Some would say that this housing shortage is more than a decade old…that it began during the 2007-2009 recession when many builders went out of business.  Homebuilders still in business and builders new to the business may have overacted to the Great Recession nightmare by under-building for the years since.

Freddie Mac analysts came to its housing shortage estimates by comparing the amount of single-family home building needed to match buyers’ demands from household formation patterns, second-home purchases and replacement housing for damaged/aging homes with the current pace of home construction.

Single-Family Home Starts Began Rising One-Year Ago

Home-building activity began rising in 2020…991,000 units were built, the highest start rate since 2007.  But in Q1 2021, home starts dropped due to the continuing shortages of qualified labor and the continuing increases in material and developed land costs, according to the US Commerce Department.

 Even if homebuilders built 1.1M-1.2M homes per year, in the view of Rob Dietz, chief economist with the National Association of Home Builders. the housing start rate would have to be higher in order to shrink the existing housing deficit.

The Result of Housing Deficit?

While housing demand continues accelerating as housing supply essentially stands still by comparison, home prices keep going through the roof.

According to the National Association of REALTORS®, the median home prices in February jumped close to +16% y/y or $313,000 when there was a near record low of a two-month supply.  Factor in the bidding war reality/concessions/”gifts” that nearly half of all potential buyers faced on their way to signing a deal in February and the price is even higher.

But, New Housing Situation Improving

Housing starts surged  +19.4% in March, according to the National Association of Home Builders.   Home builders’ confidence in new housing also went up.

Now, if only lumber prices could go down and the availability of qualified labor could go up, perhaps potential homebuyers could get a reprieve in prices along a new home to live in.

Thanks to the National Association of Home Builders, the National Association of REALTORS®, Freddie Mac, CNBC and MansionGlobal.

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