May 27, 2021
When Will The Housing Shortage Come To An End?
The 2021 real estate market is one that is continually proving to be controlled by the sellers. Due to a shortage of homes on the market, buyers are being placed into fierce bidding wars with minimal opportunities for purchase. Although much of this competitive market is due to the recent global pandemic there is an additional underlying cause for the lack of homes available.
The U.S. Census Bureau kept detailed information regarding the number of homes built between 1959 and 2006. During this time period, there was a steady rate of growth of around 1,102,938 homes built on average every year (U.S. Census Bureau). Yet this number rapidly declined from 2007 to 2020 with an average of 708,186 homes built yearly (U.S. Census Bureau). On average, this is nearly 400,000 fewer homes built per year, causing the shortage we are currently experiencing. Homebuyers are feeling this strain as finding an adequate home has never been so pressing. Within this past year, our homes had become our workspaces, centers for education, and sole form of entertainment. Looking for homes that have amenities to accompany these changes is likely to remain a strong buyer need when searching for their new residence.
Although there has been an evident lack of homes available, it has not slowed buyers from searching. This past year has weathered a perfect storm for purchasing a home. Ranging from millennials (the current largest generational group) moving into the home-buying phase of their lives to record low mortgage rates which make buying homes dirt cheap on the mortgage end. All the while, COVID restrictions remained in place – being another push for homebuyers to find their dream home.
The question that everyone is posing is “how long will this shortage last?” According to Inman, through statistical analysis, it will take around 13.8 years to reach a place where we eliminate a shortfall of homes. Currently, we are in a 5,526,525-home deficit and would need to build at a 1.5 million home per year pace to reach an equilibrium in 13.8 years (Inman). This is an additional 400,000 homes to the 1.1 million average to tackle this growing deficit. Yet as proven time and time again, banking on American ingenuity and technological advancements it is believed that as a country we could reach 2 million homes built per year. Through calculation, this would slash the original timeline to 6 years.
It is important to analyze why this shortage occurred to ensure that history doesn’t repeat itself. Much of this imbalance is due to the federal government’s push to increase homeownership in the U.S. in the early 2000s. Throughout this push, many best practices were thrown out the window in regard to issuing loans. Requirements such as good credit, employment, and down payment were often waived. This led to many unqualified buyers getting approved for mortgages they could not afford. An increasing number of homes quickly went into foreclosure and their value plummeted.
Shortage imbalance aside, it is important when you enter an ultra-competitive real estate market to have a real estate agent who is well versed in the market and will be an ally throughout your home buying process and beyond.