Inventory shortage of 5 million new homes in the US, can builders make up the difference?

Dec 6

Written By Pinnacle Real Estate Investment & Development

12.3 million American households were formed from January 2012 to June 2021, but just 7 million new single-family homes were built during that time. Single-family home construction is running at the slowest pace since 1995.

It has been a struggle in the housing market to keep up with demand since the 2010’s, when the number of new homes built was slashed in half compared with the previous decade. As the demand for residential real estate has increased, the scarcity of homes for sale has created a logjam on the supply side.

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 new research from Realtor.com.

Even with more new homes under construction, the problems facing the construction industry are sure to remain in 2022 and beyond. Without a change from the government and the construction industry itself, inventory will remain below needed levels, says Robert Dietz, senior vice president and chief economist at the National Association of Homebuilders.

The inventory shortage, which has been a nuisance for years now, is causing even greater disruption since the pandemic began. Fueling intense buyer competition and sky-high home prices.

Anyone searching for a home today knows full well the pickings are slim. The supply of U.S. homes for sale is near a record low, and the gap between supply and demand is widening.

While new household formation is actually slower than it was before the pandemic, homebuilders would have to double their recent new home production pace to close the gap in five to six years.

Builders and developers continue to work with their trade partners in efforts to fix the supply chain issues that have plagued the industry throughout the pandemic, and are starting to see some improvement with materials and products moving thru the seaports and trucking depots. Increased production volumes across the homebuilding industry will definitely be a factor in the number of new homes starts in 2022 and beyond.

Due to the shortage, prices for new and existing homes are rising at a record pace. For new construction, builders’ sales in the first half of 2021 are down 12% compared to the same period in 2018.

Presently, builders and developers have the capacity and the resources to increase their housing starts into 2022 and 2023. Hopefully with the supply chain issues in the rear mirror, they will be able to increase inventory and put more new homes on the market. This should reduce pent-up demand and start to see a reduction in sale prices to more manageable level.

No matter how you frame the scenario, it will take a more meaningful shift in the pipeline to meet demand in the foreseeable future.