Realtor.com®: U.S. Housing Supply Short 7.2 Million Homes

Rhea-AI Summary

Realtor.com analysis reveals a long-term housing shortage in the U.S., with 7.2 million homes missing due to underbuilding. Household formations outpace single-family home construction, widening the gap to 2.5 million homes in 2023. Affordable new for-sale inventory starts to recover, with sunbelt metros showing faster growth.

Insights

Economist

The reported gap between household formations and single-family home construction has significant implications for the economy. A persistent housing shortage can lead to increased home prices and rents, exacerbating affordability issues. This, in turn, can impact consumer spending as a larger portion of income is diverted to housing costs, potentially slowing economic growth. The increase in new construction, particularly in the affordable segment, suggests a market response to demand, which could stabilize or even lower prices over time. However, the growth in household formations indicates a robust underlying demand that could sustain growth in the construction sector, a key contributor to GDP.

Moreover, the regional disparities in housing starts versus household growth, particularly in areas like Texas and Florida, reflect migration patterns and economic trends. These patterns can influence local economies, with faster-growing regions requiring more infrastructure and services, thereby stimulating job creation and business opportunities. The focus on affordability in new construction also hints at a market correction where builders are responding to the financial constraints of consumers, potentially leading to a more balanced housing market.

Market Research Analyst

The shift in demographics of new construction buyers, with a lean towards younger, wealthier consumers, particularly Millennials, indicates a changing target market for homebuilders. This shift can influence marketing strategies, product offerings and future developments. Builders may need to focus on tech-friendly homes with modern amenities that appeal to this demographic. Additionally, the fact that new construction buyers are often repeat purchasers suggests brand loyalty and customer satisfaction are critical for builders to capitalize on. This could lead to increased investment in quality control and customer service.

The emphasis on location and builder reputation as top considerations for homebuyers underscores the importance of brand image and the strategic selection of development sites. Homebuilders and real estate companies might need to invest more in branding and location analysis to stay competitive. The data on purchasing behaviors and motivations can also guide builders in tailoring their offerings to meet the preferences for customization and newness that are highly valued by today's buyers.

Real Estate Analyst

The gap between household formations and housing starts is a critical metric for understanding the dynamics of the real estate market. The widening of this gap suggests that demand is outstripping supply, which could perpetuate the trend of rising home prices and rents. For investors and stakeholders in the real estate market, this could mean sustained demand for new housing developments, particularly in high-growth metropolitan areas. The data indicating an increase in affordable new for-sale inventory is a positive sign for the market, suggesting that homebuilders are adapting to the need for more reasonably priced homes.

It's also worth noting that the reported increase in multi-family home construction could signify a shift towards denser, urban-style living or a response to affordability challenges. This could have implications for urban planning and infrastructure development. The regional variations in the gap between single-family permits and household formations provide insights into market-specific opportunities and challenges. Stakeholders should monitor these trends closely to inform investment and development decisions.

Household formations outpaced single-family home construction by 7.2 million homes in 2023; including multi-family home construction reduces the gap to 2.5 million homes

SANTA CLARA, Calif., Feb. 27, 2024 /PRNewswire/ -- While the number of homes for sale has been recovering from pandemic-era lows thanks to a surge of new construction, a new Realtor.com^® analysis found that the market is still missing up to 7.2 million homes, the result of more than a decade of underbuilding relative to population growth.

"The U.S. is in a long-term housing shortage with the construction of new homes failing to keep pace with a growing population. While a recent uptick in new construction has the potential to alleviate the historically low level of homes for sale on the market today, it's going to take some time to close the gap," said Danielle Hale, Chief Economist at Realtor.com^®. "That said, the elevated level of both single- and multi-family construction coming to market this year is likely to put downward pressure on rent prices in many markets, welcome news for renters. It also means that the higher than usual share of new homes for sale is likely to continue, giving home shoppers willing to consider new homes more options."

Household formation outpaces single-family home construction, despite uptick
In 2023, an additional 1.7 million households formed, resulting in a total of 17.2 million new households between 2012 and 2023. Homebuilders started construction on 947,200 single-family homes and 472,700 multi-family homes in 2023, bringing the 2012 to 2023 overall housing starts total to 14.7 million homes, roughly 10 million of which were single-family. The gap between single-family housing starts and household formations grew from 6.5 million at the end of 2022 to 7.2 million at the end of 2023 as household formations remained steady and single-family home construction waned. Though the gap widened, it was the third smallest single-year gap between households and housing starts since 2016.

As household formations outpaced housing starts in 2023, the overall gap between household formations and total housing starts, including single- and multi-family homes, widened from 2.3 million housing units between 2012 and 2022 to 2.5 million units at the end of 2023.

Affordable new for-sale inventory starts to recover, sunbelt metros grow faster
In 2022, just 38% of new homes were sold for less than $400,000, however, in 2023, this share increased to 43%, indicating a shift toward more affordability in the new construction space. Many builders offered price cuts and other incentives in 2023 to prompt home sales and also focused on smaller units, which likely led to this progress in affordability.

At the metro-level, some areas have seen outsized household growth relative to permitting activity. Looking at just the gap between single-family permits and household formations reveals that permitting activity has lagged household growth in 73 of the top 100 metros in the U.S. The metros with the largest single-family gap include San Antonio-New Braunfels, Texas; Austin-Round Rock, Texas; and Deltona-Daytona Beach-Ormond Beach, Fla. The top 10 list of metros by size of gap relative to population includes three Texas metros, five Florida metros, and two Washington metros. Many of these areas have seen significant population growth because of their affordable cost of living and overall desirability.

Who are today's new construction buyers?
Realtor.com^® is also releasing a New Construction Consumer Report today, a survey of recent new home buyers that looked into their motivations and buying behaviors. According to that report, the typical new construction buyer today skews younger, wealthier and more pet friendly compared to non-new home buyers. While new construction buyers were previously more likely to be Boomers, today it's Millennials; among respondents who bought new construction in the past 12 months, nearly half (48%) were Millennials. Despite skewing younger, most surveyed new construction buyers are experienced home purchasers, and 75% had previously owned a home. New home buyers are also more likely to be higher income earners, with more making between $100,000–200,000 versus non-new home buyers (30% compared to 22%).

Newness, customizability and location top draws for new home buyers
When it comes to the appeal of new homes, buyers purchased first for its newness, followed by customizability and resale value. Price is a top concern for new home shoppers, but location matters most; 28% of new construction respondents placed location above price (24%) as their prime initial consideration factor. When choosing a builder, their reputation rounded out the top three most important factors, and mattered to potential buyers almost as much as price and location. In fact, early half of surveyed buyers (48%) said they considered a builder's reputation and ratings as part of their selection criteria, scoring higher than the ability to customize and the timing/availability of the home. Repeat customers are top future customers too; 91% of recent buyers say they'd purchase a new construction home again.

Realtor.com^® is helping educate homeshoppers about the benefits of new construction with a newly launched consumer campaign at www.realtor.com/newconstructioneducation.

Methodologies
To view the full reports and methodologies, please visit the U.S. Housing Supply Gap Report and the New Construction Consumer Report pages.

About Realtor.com^®
Realtor.com^® is an open real estate marketplace built for everyone. Realtor.com^® pioneered the world of digital real estate more than 25 years ago. Today, through its website and mobile apps, Realtor.com^® is a trusted guide for consumers, empowering more people to find their way home by breaking down barriers, helping them make the right connections, and creating confidence through expert insights and guidance. For professionals, Realtor.com^® is a trusted partner for business growth, offering consumer connections and branding solutions that help them succeed in today's on-demand world. Realtor.com^® is operated by News Corp [Nasdaq: NWS, NWSA] [ASX: NWS, NWSLV] subsidiary Move, Inc. For more information, visit Realtor.com^®.

Realtor.com^® media contact: 
Sara Wiskerchen, press@realtor.com 

View original content:https://www.prnewswire.com/news-releases/realtorcom-us-housing-supply-short-7-2-million-homes-302072811.html

SOURCE Realtor.com

FAQ

How many homes are missing in the market according to the Realtor.com analysis?

Realtor.com analysis found that the market is missing up to 7.2 million homes.

By how much did household formations outpace single-family home construction in 2023?

Household formations outpaced single-family home construction by 7.2 million homes in 2023.

What was the gap between single-family housing starts and household formations at the end of 2023?

The gap between single-family housing starts and household formations grew from 6.5 million at the end of 2022 to 7.2 million at the end of 2023.

How much did the overall gap between household formations and total housing starts widen in 2023?

The overall gap between household formations and total housing starts widened from 2.3 million units between 2012 and 2022 to 2.5 million units at the end of 2023.

What percentage of new homes were sold for less than $400,000 in 2023?

In 2023, 43% of new homes were sold for less than $400,000, indicating a shift toward more affordability.

Who are today's new construction buyers according to Realtor.com?

Today's new construction buyers skew younger, wealthier, and more pet-friendly compared to non-new home buyers, with Millennials making up nearly half of recent new construction buyers.

What are the top draws for new home buyers according to the New Construction Consumer Report?

Newness, customizability, and location are the top draws for new home buyers, with location being the most important factor followed by price and builder reputation.