Homebuilders have a lot catching up to do after 2019’s housing shortage.
According to realtor.com, there will be home sales declines, not because of weak demand for homes, but largely due to a shortage of supply. And that’s not just from 2019.
The report released this week suggests that builders need to act fast in order to make up for the lost supply.
The report says that since 2001, 17.6 million single-family homes were built, while 20.2 million households have been formed. This means that there has been a cumulative supply shortage of 2.6 million units.
And it’s situations like this – a shortage of homes and a rise in prices of the remaining homes – that lead to low apartment vacancies.
Over the last 20 years, home building has remained inconsistent. An average of 8.5 homes per 1,000 households were built. In this same time frame, the aforementioned 20.2 million households formed, meaning about one home was built per 1.15 new households.
Between 2001 and 2005, a total of 7.5 million single-family homes were constructed. Meanwhile, about 6.4 million new households were formed, realtor.com said. This amounts to about one home built per 0.9 households formed. At this point, homebuilding was slightly, yet consistently, outpacing household growth.
By 2005, single-family housing starts in relation to population peaked, at over 15.5 new homes built per 1,000 households. At this point, the five-year average went up to 13.9 starts per 1,000 households.
When the financial crisis hit in 2008, home construction led to an excess supply of homes. From the lead into the recession in 2006, to the breaking point in 2008, overbuilding homes became a new trend.
During this time, 3.1 million single-family homes were constructed, but there were only 1.54 million new households formed. This equates to one home being built per 0.5 households formed.
In 2006, the amount of single-family starts per 1,000 households went from 13.2 to 5.6 in 2008.
Post-crash, from 2009 to 2011, home builder sentiment remained cautious. During this time, 1.35 million single-family homes were constructed, while 2.28 million new households were formed. So, one home was built per 1.7 households being formed.
In 2012, Millennials made their entrance into the market. From 2012 to 2019, 5.9 million single-family homes were constructed. Meanwhile, 9.8 million new households were formed, meaning one home was built per every 1.7 households formed.
During this period of economic growth, housing starts improved slowly. Single-family starts per 1,000 households have grown from 4.6 in 2012 to 7.3 in 2019, making the eight-year average 6.2 starts per 1,000 households.
What’s next? The pace of household formation is expected to be moderate in 2020, as economic output and household growth slow down. Builder confidence was also at a two-decade high at the end of 2019, and if all economic factors remain the same, realtor.com says there is plenty of untapped potential.