Real Estate Industry News

America’s housing shortage is definitely no secret. But just how bad is it? According to a new analysis from Realtor.com, the market needs a whopping 3.8 million additional new homes to fully meet consumer demand.

Since 2012, nearly 10 million new households were formed in the U.S. Only 5.92 million single-family homes were built in that same period, leaving what Javier Vargas, Realtor.com’s director of economic research, calls “a nearly insatiable appetite from potential buyers, especially in the lower end of the market.”

Meeting that demand? According to Vargas, that will require two things: First, Baby Boomers and Gen Xers will need to free up some of the existing housing supply. Even more important? Builders need to “make bolder moves and capitalize on a hungry waitlist of first-time homebuyers.”

To be fair, construction has grown in recent years. The number of single-family homes started per 1,000 households jumped from 4.6 in 2020 to 7.3 last year. While it’s an improvement sure, it only comes out to about 6.2 starts per 1,000 households annually—what Vargas calls improvement, “but at a crawling pace.” 

Fortunately, it seems builders are open to changing that. According to the recent Housing Market Index from the National Association of Home Builders, builder confidence is strong. In fact, toward the end of 2019, it reached its highest point in 20 months.

Starts were also up last month, with single-family housing starts rising 11.2% over November and 1.4% over a year prior, according to the U.S. Census Bureau. Permits for single-family units were up 10.8% over 2018.

But it’s still not enough. According to Zillow data, for-sale housing inventory has officially hit its lowest point in seven years last month. And Realtor.com’s analysis shows it would take 12.5 starts per 1,000 households—and four or five years at that pace—to “get out of undersupply and back to equilibrium.” 

The question is: After significant losses and oversupply problems during the housing crash, are builders willing to go out on a limb and risk it?

“In 2020 and beyond, builders have the capacity and confidence to address home buyer demand, but they also have reasons to remain cautious, maximize profits and avoid overbuilding,” Vargas says. “If they can manage to balance both forces carefully in the new economic cycle, homebuilders could be one of the bright spots for housing in the new decade.”