The latest estimates of the housing shortage in the US put the deficit at almost 4 million single-family homes. The strong demand for property increases the shortfall by over 50% in just threes years, highlighting the acute lack of inventory in the US real estate market. Meanwhile, although new home starts and sales rose sharply in March, supply still lags far behind demand.
Shortfall rises by 52% in three years
In mid-April, figures released by Freddie Mac reveal the extent of the housing shortage in the US real estate market. The mortgage loan corporation found that 3.8 million single-family homes are needed to meet current demand.
The shortage is 52% higher than figures included in similar research carried out just three years ago. In 2018, supply had a deficit of 2.5 million single-family homes.
“The figures underscore the severity of the housing deficit,” said Sam Kahter, Chief Economist at Freddie Mac. He went on to say that the shortage is one of the major factors driving the “current red-hot market”.
Huge shortage of entry-level homes
Supply issues are particularly severe for first-time home buyers. Many currently find themselves priced out of a market, which has recently seen double-figure price hikes.
As well as lack of affordability, entry-level buyers also face tough competition for homes that are currently flying off the shelves. In Florida, for example, the time taken to sell single-family homes at the end of 2020 dropped by 18.5% compared to a year earlier.
Strong new home starts and sales
In the light of unprecedented demand, the construction industry reported brisk sales in March as well as a high pace of new-home starts. Sales of single-family homes rose by 20.7% in the month, reaching their highest sales rate since September 2006.
For their part, new-home starts went up by 19.4% in the year to March to reach an annual rate of 1.74 units). This is the highest since June 2006. The number of starts for single-family homes increased by 15.3%. Permits, however, only rose by 2.7%.
US real estate market fails to meet demand
However, despite the brisk rate of starts and sales, supply simply cannot keep up with demand. Figures from the National Association of Home Builders (NAHB) showed that inventory levels of new-build single-family homes stood at just 3.6 months in March. The figure represents a drop of 44.6% in a year.
“Demand remains solid due to low mortgage interest rates and a thin level of inventory in the resale market,” said NAHB Chief Economist Robert Dietz. “This is spurring the need for additional supply.”
Freddie Mac estimates that the market needs 1.1 to 1.2 million new single-family homes a year to meet long-term demand. However, in the short-term, this figure needs to be even higher to bring down the immediate shortage.
This scenario offers good news for build-to-rent and buy-to-let. As supply plays catch-up with demand, opportunities for both build-to-rent and buy-to-let open up across the US.
Particular hotspots are areas with buoyant job creation and rock-bottom inventory levels. Southwest Florida is a case in point. For example, in the Tampa Bay area, supply for single-family homes in February this year stood at just 0.8 months.
(Sources: Freddy Mac, National Association of Home Builders)