Home buyers are likely to continue struggling with inventory shortages and a dearth of homes for sale for years to come, even as a new wave of properties come on to the market.
While new listings are increasingly coming on to the market, the U.S. faces a shortage of a staggering 5.42 million homes, according to research by realtor.com. That’s up by 1.4 million homes since 2019.
According to Danielle Hale, chief economist of realtor.com, the COVID-19 pandemic has only made the housing shortage worse, as those who’re financially able to increasingly look to move in search of more space at home.
The bad news is that builders seem unable to make up for the shortfall. New home construction is currently at its slowest pace since 1995 as builders are plagued by a combination of high prices and shortages of building materials and a lack of labor, plots and even home appliances that have all contributed to a slowdown in production. CNBC reported that 12.3 million new households were formed in America between January 2012 and June 2021, but only 7 million new single-family homes were built during the same period. For builders to make up the gap, they would need to double their new home production and then keep that pace up for another five to six years.
It’s an almost impossible scenario for builders to deal with. “No matter how you frame it, it will take a more meaningful shift in the pipeline to meet demand in the foreseeable future,” Hale told CNBC.
One of the U.S.’s largest home builders, PulteGroup, last week said it’s lowering its third quarter guidance for home closings due to supply chain disruptions. The company has a backlog of orders and it intends to focus on fulfilling those first, executives said.
“Despite the extraordinary efforts of our trade partners, the supply chain issues that have plagued the industry throughout the pandemic have increased during the second half of the year,” PulteGroup CEO Ryan Marshall said during an earnings call. “We continue to work closely with our suppliers but shortages of a variety of home building products, combined with increased production volumes cross the homebuilding industry are directly impacting our ability to get homes closed to our level of quality over the remainder of 2021.”
Other builders have faced similar problems and have taken the same steps, in some cases even stopping from taking new orders for the time being. Due to that, stocks of homebuilding firms have traded significantly lower in recent weeks.
The limited supply of homes continues to force prices upward. Homes with a median value of $300,000, which are what’s considered to be in the ‘affordable’ bracket these days, according to economists, made up just 32% of all new home sales in the first half of the year, down from 43% in 2018.
Existing home prices have seen similar increases as well, with the median price in that market rising to $359,000 in July, according to data from the National Association of Realtors. That’s up 18% from one year ago.
The NAR published a report earlier this summer, saying the state of America's housing stock is in a "dire situation".
NAR Chief Economist said at the time that although there’s a strong desire for homeownership in the country, the lack of supply is preventing thousands of Americans from achieving it.
“It’s clear from the findings and from the conditions we’ve observed in the market over the past few years that we’ll need to do something dramatic to close this gap,” Yun said.