How-the-current-housing-supply-compares-to-2007

 

Housing Supply

Housing supply growth begins with lot supply. According to the International Business Times, recent Government data shows that "new single-family projects fell 4.5 percent and construction started on apartments dropped 13.6 percent." According to Zonda’s Lot Supply Index, we now see nationally, available lots have hit an all time low, down 34.8% year-over-year, with San Diego and LA at the bottom.

 

Get-a-Retirement-Analysis

"The U.S. is short 5.24 million homes, an increase of 1.4 million from the 2019 gap of 3.84 million, according to Realtor.com"

 

These supply numbers may be even worse, as many reports include pending home sales in the NAR supply numbers. For example, when looking at NAR in January, the NAR is reporting that inventory was down 25.7%. Realtor.com shows that active listings decreased 24% through the end of August. The drop in supply today is due to a low new home starts for 10 years, pandemic shift from cities, record low mortgage rates, a move away from multi-family rentals, single family homes, second home buying, and now cost of materials have stifled new home starts. The construction of Single-family homes has increased steadily since it bottomed in the midst of the 2009 Great Recession; It is still lower than before the housing boom, and is in fact, running at its slowest pace since 1995. Home prices in July had an annual gain of 17.8%; The lack of inventories started in 2008, when new home starts went from 40k per million since 1960 to 20k per million for 10 years starting in 2010 (Figure 1B). Looking at 2019, more new homes were completed in 2019 than in any other year of the past decade, and still there were far fewer homes built than in any other non-recession year in the postwar era. Particularly when adjusting for population size, which is key for predicting household formation. Private housing units given building permits in July approached a seasonally-adjusted rate of 1,635,000. This figure is 2.6% above the June rate of 1,594,000, and 6% higher than the July 2020 figure of 1,542,000. Data shows the share of homes authorized but not yet started surged in July to the highest level recorded in 15 years. Houses that have started are also being delayed because of cost increases. Approximately 15% of builders said they are putting down concrete foundations (Considered a Home Start) and then holding off on framing the house. These facts are further evidence that builders are delaying building due to the substantial increase in costs for labor, lumber, copper, rebar and other materials. Given the current market conditions, homebuilders would have to double their recent new home production to alleviate the shortage, in five to six years.

 

"New Construction declined 7% in July to 1.53 million rate

 

Taking additional supply off the market, has been rentals. "Rents for single-family homes increased 7.5 percent year-over-year across the U.S. in June, the highest such increase recorded since at least 2005 and a sharp uptick from the 1.4 percent increase in June 2020," according to CoreLogic, a housing data provider. At the same time, housing starts dropped while many of these investor-owned rental conversions were bought by institutions and individual investors. These homes were first time home buyer properties, which took that supply off the market. Second, "Baby boomers account for about 44% of America's housing wealth despite only making up 28% of the adult population." Boomers are not moving and downsizing, which would typically create inventory. Those that do want to downsize are competing for the same low inventory starter homes that Millennials want, so they are just staying put. The Boomers born between 1946-1964 are now turning 75 and are much healthier than prior generations. Based on historical data, we should see some relief as the baby boomers start hitting their 80’s in the next 5-10 years and begin selling their homes.

 

Click here for a detailed explanation of the other market drivers which indicate a housing crash is unlikely: https://blog.theretirementgroup.com/blog/retiring-worried-housing-crash 

RE_Figure 1A

 

Figure 1A

 

Existing-Home-InventoryFigure 1B 

Residential-Inventory-Measures Figure 1C

 



Sources

This is Not the 2007 Housing Bubble” The Retirement Group, 25 April. 2021, https://theretirementgroup.com/
Ackerman, Andrew. “Consumer Agency Seeks to Restrict Foreclosures Through 2021 - WSJ.” WSJ, The Wall Street Journal, 5 Apr. 2021,

https://www.ibtimes.com/us-new-home-construction-slows-july-3276251

https://zondahome.com/new-home-lsi-new-home-lot-inventory-dropped-to-cycle-lows/

https://www.realtor.com/

https://www.cnn.com/2021/08/23/homes/us-home-sales-july-feseries/index.html

https://www.census.gov/construction/nrc/pdf/newresconst.pdf

https://fred.stlouisfed.org/series/AUTHNOTT

https://www.bloomberg.com/news/articles/2021-08-18/u-s-housing-starts-decline-more-than-forecast-permits-rise

https://therealdeal.com/2021/08/17/single-family-rents-spiked-7-5-in-june-sharpest-increase-since-2005/

https://www.wsj.com/articles/if-you-sell-a-house-these-days-the-buyer-might-be-a-pension-fund-11617544801?mod=article_inline

https://fred.stlouisfed.org/series/CSUSHPINSA

 

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John Jastremski

Written by John Jastremski