First off, no I have not lost my mind, I can actually support the idea that there may be somewhat of a housing shortage soon but, as the headline implies, I don’t necessarily think it’s going to happen in St. Louis, unfortunately. However, its’ a distinct possibility in many markets throughout the U.S. particularly those with population growth and an increasing supply of jobs.
When the real estate market crashed, back in 2007-2008, there was an oversupply of homes on the market including a large inventory of new homes. However, as the chart below shows, new home construction came to a screeching halt, with production dropping to about one-third of the 1.5 million new homes per year the prior few years had averaged.
Now, as the housing market struggles to slowly improve we are seeing many markets around the country that are starting to become sellers markets as a result of the lack of inventory of homes for sale. The economy still has many would-be home buyers sitting on the sidelines but it is believed by many that, once we see some sustained improvement in the economy and with jobs, we will see an onslaught of home buyers. Since new home construction has been at historically low levels now for several years that lays the ground work for a possible shortage of housing.
The coming shortage of housing:
To see just what impact the lack of new home construction is having and will have on the overall housing market, I took a look at 50 years of housing data to see what the normal rate of growth in housing units in the U.S. has been (new as well as existing homes) . What I found is, during the period from 1966 through 2006 the median increase in housing units was 1.5 percent per year in the U.S. It just so happens in 2007 the increase in housing units was 1.5 percent from the year before so I decided to start there and see what has happened since.
As the chart below shows, 2008 actually added “extra” housing stock to the inventory over the norm but then in 2009 there weren’t even enough homes built to offset the housing units removed from inventory by demolition, redevelopment or other reasons. Then, in 2011, things picked up with housing units increasing in the U.S. 1.3 percent from the year before, but leaving us with a cumulative shortfall from the norm of over 300,000 homes for the three year period ending in 2011. The real blow came last year though as the number of housing units increased just 0.4 percent or, less than one-third of the median increase in the prior 50 years, leaving us with a cumulative shortfall in housing units for the period of 2009 through 2012 of over 1.5 million units.
© Copyright MORE, REALTORS – All rights reserved - Source: U.S. Census Bureau
I don’t think we will see the effects of this shortage for a little while as, even though my first chart shows the U.S. population increasing at a steady rate, household formation has been down as people choose to live with family, add roommates, etc due to the down economy but, once things perk up in the economy I believe we will see this change quickly.
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