How long will the housing shortage last?

Beginning in 1959, the US Census Bureau started to record housing stats. During the 48 years between 1959 and 2006, builders completed 52,941,000 homes for an average of 1,102,938 homes per year.

For the 14 years between 2007 to 2020, builders started 9,914,600 homes or 708,186 homes per year, which is 394,752 fewer starts per year than the historical average. This annual shortfall totals 5,526,525 homes during those years. In 2020, builders started 990,500 homes, still below the historical average of 1.1 million annual starts.

   Homebuyers are now paying the price for the need for homes continued, intensified by a combination of new developments that increased housing demand. Included are the COVID-19 lockdowns that forced many to work, teach and learn remotely, a population that continued to live longer, preventing their homes from being recycled.

Thinking optimistically and knowing a little about U.S. homebuilders and American ingenuity, builders might create an average of 2 million homes annually and achieve a supply-demand balance in about six years.

What has caused the demand-supply imbalance?

Except for the 1973 OPEC Oil Embargo, market downturns since 1959 were caused by changes in federal legislation or policies that affected interest rates or tax policy. Federal action is not driving the market today, but its policies are responsible for damaging builder production.

For those who do not know or remember, in the early 2000s, the federal government wanted as many people as possible to own a home. To make that happen, lenders encouraged (if not coerced) to abandon established lending practices, making risky subprime loans.

Home loans were originated without regard to credit, employment or down payment. Circumvention of established lending guidelines was facilitated by the unprecedented policies of FHA, FNMA and FMAC that allowed sellers to gift down payments and closing costs to buyers through third parties.

Credit: Inman Connect

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