A lack of new construction has caused an inventory shortage.
What does new construction have to do with our current housing market?
As you know, between 2008 and 2011 (depending on your location and level of involvement with the market) we went through what’s known as the Great Recession. Sales were way down, as were property values. As a result of this downturn, the level of new construction dropped dramatically and stayed down. This means 12 to 13 consecutive years of depressed new construction markets. Houses were simply not being built. When you add up the shortfall accumulated over that period, it amounts to 4.1 million homes that were never built.
However, our population in the U.S., along with new housing formations, continued to grow year over year. Not having these properties enter the market has put a lot of stress on families looking for their first home. Although there’s a huge demand for new homes, a new home can’t be built overnight, and we’ll never get back those homes that weren’t built because we can’t get those last 12 or 13 years back.
That said, home builders can ramp production up, and that’s exactly what they’ve been doing. In fact, 2020 was the first year since the Great Recession that the number of new homes built surpassed the one million mark.
This has led to the housing shortage we’re seeing now, and if you think about it, every new house is actually two housing opportunities. Along with the new house being bought, the family that’s moving into it is leaving another house to be sold to another family. If we had all the inventory we lost in the market right now, we’d be under less pressure and there’d be less demand from the people who are out there looking for new homes. The total number of homes in the marketplace will affect you even if you have no intention of buying a new home.
The bottom line is, new home construction has a big impact on the resale market. Now that the production of new homes has ramped up, hopefully it stays that way and meets some of the demand we’re seeing out there.
If you’d like to know more about this subject or are thinking of buying a home, don’t hesitate to reach out to me. I’d love to hear from you.