Reloading housing stock to pre-pandemic levels from more than decades-long underbuilding, labor shortages and restrictive building codes is anticipated by the end of 2024.
2022 Housing Market to Look Like 2021 Regarding Inventory Shortages
If you and/or your clients are expecting for-sale inventories to swell throughout the country this year, think again.
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It took the collapse of the housing bubble in 2008 and subsequent decades of underbuilding to hit an historic shortage of housing in this country and it will take until late 2023 or 2024 to replenish our country’s housing stock to pre-pandemic levels, according to the latest research by Zillow.
Why US Housing Shortage So Severe
Sam Khater, Freddie Mac’s Chief Economist, estimated the housing shortage in the US to be 2.5M units in 2018. By the time 2021 and 2022 rolled around, Khater’s estimate ballooned to roughly 3.8M to 4.0M units.
The main driver of the housing shortfall has been the long-term decline in building single-family homes. This shortfall has been exacerbated by an even larger decrease in the supply of entry-level or starter single-family homes. The number of starter homes, homes of 1,400 square feet or less, available for purchase dropped to a 50-year low in mid-2021.
Khater said, “We’ve got a record number of entry-level, demand buyers…and yet we’ve had (multi-years’) decline (since the 1980’s) in entry level homes, and that’s not going to change.”
Adding to construction industry’s bloodbath during the housing market collapse in 2008 are the following:
- A decimated workforce that got retrained for new jobs
- A workforce hit by the COVID pandemic and lockdowns exemplified by one builder’s spoken words, “If I had twice as many guys, I would still not have enough…and my subcontractors, they’re all hurting for people.”
- A lack of land on which to build.
- Restrictive zoning rules that, according to Robert Dietz, chief economist with the National Association of Home builders, dictate “…(having) to build single-family units on lots that are bigger than the market wants…” and more than what many first-time buyers can afford to buy.
- Classic NIMBY-ism (not in my back yard) opposition that stops higher-density units from being built.
- Supply chain delays that are adding tens of thousands of dollars in cost to the typical newly built house.
Latest Survey Indicates At Least Two More Years Before Inventory Climbs Up to Pre-Pandemic Levels
According to a panel of housing market experts polled in Zillow’s latest Home Price Expectations Survey, inventory levels are expected to climb back up to pre-pandemic levels by the end of 2024.
Why so long? Total inventory across the US has dropped from a monthly average of 1.6M units in 2018 and 2019 to roughly 1M in 2021. Monthly figures thus far in 2022 are even lower.
This shrinking supply of for-sale homes has been a direct cause of the +32% explosion in home values over the past two years.
Housing industry experts were asked in Zillow’s Home Price Expectations Survey when they expected to see inventory return to at least a monthly average of 1.5M units. Cumulatively, 79% of these expert respondents indicated they expected to see inventory return to a pre-pandemic level of 1.5M units/month by the end of 2024.
When Will First-Time Buyers Return
Zillow’s Consumer Housing Trends Report of 2021 indicated that first-time home buyers dropped from 45% in 2019 to 37% in 2021.
Now that first-time-buyers in 2022 must face even more housing market challenges (severe inventory shortages, home price appreciation exploding to +32% over the past two years, rent prices exploding to a minimum of +15% throughout the country which make saving for a down payment more difficult, and surging interest rates), housing experts expect first-time buyers to regain a 45% share of home buyers by, at best, 2024.
Here’s the breakdown of industry expert responses to the question, “When do you expect first-time-buyers will again make up 45% of home buyers?”:
- 26% said 2024
- 25% said 2025
- 18% said not until after 2030
Expectations of Home Price Appreciation
Housing industry experts surveyed by Zillow predicted that average home value growth for 2022 would be 9%. This 9% is a huge drop from the 19% home value appreciation experienced in 2021.
Looking beyond 2022, the most optimistic survey respondents predicted home prices would rise +46.5% between now and the end of 2026. The most conservative respondents predicted home values to rise just +10.3% by the end of 2026.
On average, industry experts predicted a +26.8% cumulative rise in home prices by the end of 2026, or a compound annual growth rate of +4.9%.
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Thanks to Zillow and Freddie Mac.