The US is short more than +5M homes and builders are not making up the difference.
Imbalance of New Household Formations and Newly Built Single-Family Homes Grows
New research by Realtor.com indicates that the gap between supply and demand concerning new home construction is widening. During 2019, the supply-demand gap was 3.84M; now that gap stands at 5.24M.
12.3M new American households were formed from January 2012 through June 2021, according to the latest data from the US Census. Meanwhile, during this same time period, only 7M new single-family homes were built.
Single-Family Home Construction Suffering
Severe labor shortages have plagued the new construction industry since the housing and financial crises in 2009. The COVID pandemic has only exacerbated this labor shortage.
On top of severe labor shortages, the construction industry has been standing empty-handed in much needed materials and supplies due to the pandemic hobbling global supply chains. What materials and supplies that have been available have pushed new home prices and the land that goes with those new homes higher and higher in the midst of pandemic-inspired soaring buyer demand.
Homebuilders Would Need to Build Twice as Fast to Close Gap in 5-6 Years
According to Danielle Hale, chief economist with Realtor.com, “The pandemic has certainly exacerbated the US housing shortage, but data shows household formations outpaced new construction long before COVID. Put simply, new construction supply hasn’t been meeting demand over the last five years.”
As we wrote up top, single-family home construction is running at its slowest pace since 1995, according to the US Census. This “slowest pace since 1995” is happening as our country’s largest generation, Millennials, enters its typical homebuying years.
What “Slowest Pace” Means for Industry Players and Homebuyers
Some of the nation’s largest new home builders have lowered their Q3 and full-year guidelines. According to Ryan Marshall, CEO of PulteGroup, “…the supply chain issues that have plagued the (homebuilding) industry throughout the pandemic have increased during the second half of the year…shortages for a variety of building products, combined with increased production volumes across the homebuilding industry, are directly impacting our ability to get homes closed to our level of quality over the remainder of 2021.”
In other words, Pulte and other builders are slowing sales just to keep up with their backlog in demand.
For homebuyers, prices for new (and existing) homes are rising at record pace. Just 32% of builder sales during the first half of 2021 had a median value of $300,000, considered to be relatively affordable. During 2018, 43% of builder sales had a comparable median value.
Clearly, fewer of today’s homebuyers can afford the median value of $300,000 for a newly constructed single-family house. And, clearly, builders simply can’t afford to build cheaper houses, given their rising labor, land and materials costs.
Realtor.com’s Hale said, “No matter how you frame the scenario, it will take a more meaningful shift in the pipeline to meet demand in the foreseeable future.”
Thanks to CNBC, Realtor.com and the US Census Bureau.