top of mind
A Troubling Shortage of Homes
There is no inflation, says the federal
government. The consumer price index
rose by only 0.4 percent in 2015 so there
will be no cost-of-living adjustment to Social Security checks this year. However,
as most real estate professionals know,
housing costs are still climbing. Rents
rose at their highest pace in seven years
and home prices nationally increased by
6 percent. That would be three times the
pace of average wage growth. Housing
costs are expected to keep rising in 2016
simply because not enough homes are
From 2009 to today, new construction
of single-family homes, condominiums,
Over the same period, approximately
1. 7 million housing units were deemed
uninhabitable or obsolete and were demolished and removed from the housing
stock. These two figures result in a net
addition of 3. 9 million housing units to the
country’s stock. Is that adequate in light
of 17. 3 million additional people living in
the country over the same period?
Clearly, the answer is no. Given the
average household size of 2. 5 persons,
a total of 6. 9 million new housing units
would be needed to accommodate the
country’s rising population. The 3. 9 million units that were actually created
fall far short of the demand—by some
3 million homes.
That explains why rental vacancies are
falling and housing inventories are shrink-
ing. Of course, local market conditions
vary. States with declining populations,
including Connecticut, Illinois, and West
Virginia, may have a less pressing need
for additional home construction. But
those places are exceptions. Housing
shortages are the rule in most states and
there’s no reason to expect anything to
change this year.
There are essentially two major consequences of a persistent housing shortage: a continuing steep rise in housing
costs and people needing to double or
triple up to a;ord a home. Young adults
may have to find multiple roommates or
else live with their parents.
That latter scenario is probably not
what most young people dream about,
but it’s what the American dream of
home ownership could turn into if we
don’t spur more housing development in
the country soon.
Lawrence Yun is
NAR chief economist.
TOP REASONS FOR
Financing is the biggest cause of closing delays,
but property condition (home inspection/
environmental issues) is most likely to cause
transactions to collapse.
MARKET PULSE Real estate markets got a scare in November when home sales
plunged almost 11 percent in one month, but they came roaring back in December and have remained
strong since. NAR attributes the drop to delays from federal closing rules that took e;ect in October.
EXISTING-HOME SALES Seasonally adjusted annual rate, which is the actual rate of sales for the month,
multiplied by 12 and adjusted for seasonal sales di;erences. 2014 data reflects final seasonal adjustments.
INVENTORY Number of existing homes on the market at the end of the month.
PRICE National median.
SUPPLY & DEMAND
All trend lines are from December 2014 to December 2015.
Source: NAR Research
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