Despite healthy economic growth and homebuilder confidence reaching its highest level since 1999, inventory levels are still woefully behind, according to a report released Tuesday by realtor.com.
From 2012 to 2019, builders constructed 5.9 million new single family homes, which represents an eight-year average of 6.2 housing starts per 1,000 households. Although builders began ramping up activity towards the end of the decade (7.3 starts per 1,000 households in 2019), it still isn’t enough to house the 9.8 million new households created since 2012.
Javier Vivas
“Simply put, new home starts are not keeping pace with demand. Homebuilders have a mountain of opportunity, but a big hill to climb,” said realtor.com Director of Economic Research Javier Vivas in a press release. “The current inventory crisis and the need for 3.9 million new homes means a nearly insatiable appetite from potential buyers, especially in the lower end of the market.”
The majority of homebuilders’ efforts have been placed at the luxury end of the market, where potential returns on investment are highest. While this benefits buyers with larger budgets, others who are looking for starter homes and homeowners who are considering upgrading are negatively impacted by a lack of new, available inventory.
In addition to a lack of new inventory, realtor.com noted that baby boomers are deciding to age in place — keeping a sizable share of existing inventory off the market as home price growth continues its seven-year climb.
Despite years of setbacks, realtor.com said 2020 might be the year that housing starts finally begin to match demand, especially as a new crop of buyers are waiting to take advantage of historically-low interest rates.
“Large populations of renters and well-qualified potential buyers with strong incomes are waiting in the wings,” Vivas said. “Assuming the economy avoids a full-on recession and rates remain low, the window for builders remains wide open.”
“If builders can deliver homes at adequate price points, absorption will continue to strengthen through the first half of the decade,” he added. “It’s easy to understand why builders have been cautious in an effort to avoid overbuilding, but we believe that demand for new homes will remain strong, and home builders could represent a bright spot for housing in the decade ahead.”
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