There's a Problem with Housing Supply: Can America Fix It?
As we head deeper into the first quarter of 2023, housing in the U.S. is still short an estimated 4-5 million homes. That means fewer opportunities for first-time home buyers or those looking to move and sell their existing properties. And this struggle has been ongoing since 2022, which begs the question: Why can't homebuilders catch up? Is there a plan to combat this shortage in any way?
Part of a Bigger Problem
Most experts agree that the current housing system in the U.S. is broken. It needs a massive overhaul, but too many are unwilling to shake it up for fear of losing the wealth invested in the market as is. But without actual reform, then nothing will help builders catch up to the growing demand. There are consistent struggles with zoning laws and building codes compounded with the labor shortages and increasing material costs that ballooned throughout the COVID-19 pandemic. These factors culminate in regular delays consistently pushing new builds further and further behind schedule.
A Cooling Market
That said, there is growing hope from the market diving and plateauing so intensely at the end of 2022, allowing homebuilders to catch up. Reports show fewer project starts overall due to a decrease in demand and, thus, a higher rate of completion on existing single- and multi-family home projects, according to a report by Housing Wire. Building permits are down year over year, and homebuilder sentiment is finally increasing after a tough year. Though there is doubt, the outlook should continue improving as builders work through the existing backlog of single-family homes.
It May Not Be As Bad As It Looks
Ivy Zelman is a housing analyst, and she believes it's too early to call the housing inventory crisis an actual crisis. When we step back, we see more potential inventory thanks to the Airbnb bust, cash-negative property offloads, second home sales from the Boomer generation, and prospective commercial spaces being converted into new housing. Combine all those factors with the decline in demand from an aging population sitting on their current homes (because who wants to sign a new mortgage with rates as they are?); you have a recipe for more available homes.
The bottom line is: It's still hard to see a plan of action to rectify the shortage of new homes in the U.S. There is hope, but a lot can change: For example, no one expected the COVID-19 pandemic to cause an explosive couple of years in the market. We can clearly see the benefits of our cooling market with the potential for everything to return to a relative normal. Already prices are taking a dip, and homes are staying on the market longer instead of being snatched up on day one of the open house. Hopefully, that will renew demand, give builders the confidence to start producing more and return the monthly housing supply to normal.