Housing Demand Outpaces Supply of New Homes

Years of underbuilding is catching up with the U.S. housing market.

A recent report from Realtor.com® states that between 2012-2022, the gap between new household formations and single-family homes rose to 6.5 million. If including multi-family construction, the gap shortens to 2.3 million homes, still leaving a shortage. The report found that there were 15.6 million household formations in the decade, with only 11.9 million new single-family houses constructed. Additionally, about 1.6% of all preexisting housing stock is lost every year. Not surprisingly, both homeowner and renter vacancies remained low at the end of 2022. Homeowner vacancy fell from 2% in 2012 to 0.8% in 2022, while rental vacancy fell from just under 8% to 5.8% at the end of 2022.

In the same time period, household formation was growing at a rate of 1.4 million per year, but housing starts of both single-family and multifamily were growing at a rate of just 1.2 million. Around 1 million single-family homes were started in 2022, while about 545,5000 multifamily homes were started. It was a decrease of 10.6% compared to 2021 for single-family homes, but an increase of 15% for multifamily from 2021.

However, the cost of new homes is less affordable than preexisting homes. The report found that in the fourth quarter of 2022, only 10% of new homes were listed for under $300,000 and only 37% were less than $400,000. A recent report from the National Association of Home Builders found that 60.8% of  a new home’s cost comes from construction costs, with interior finishes costing 24% of the cost. Builders’ confidence has dropped as interest rates continue to hover between 6-7%, falling from to 31 in December, down from 83 in January.