Housing Shortage – Are You Kidding?

While it may seem like a far-fetched idea (especially if you are trying to sell your home at the moment), an increasing number of economists are predicting a housing shortage in 2011/2012. How you might ask, can we have a shortage of homes given the current sluggish housing market? Well it's all got to do with the number of homes that need to be built, just to keep up with basic demand.

Every year demand is created for housing for various reasons, people get married, people get divorced, children leave home and some homes are even condemned and torn down. The fact is that the number of new homes currently being constructed in the U.S. is not enough to keep up with this natural burn rate. Of course this is a good thing; a shortage of new home builds means the inventory of new construction homes currently standing empty should start to decrease.

Take Utah for an example, James Wood, director of the Bureau of Economic Business Research, estimates that 20,000 new households are being created statewide every year. But the inventory of housing units is only increasing at 10,000 units. This should mean that the inventory of homes for sale (both new construction and resale homes) should decrease by 10,000 per year.

Of course these figures don't take into account the additional housing supply created by families leaving their current home and either moving into rented accommodation or moving in with relatives/friends. Given this the housing recovery is also dependent upon people retaining their current home.

Obviously the rate of absorption of the housing inventory will differ depending upon geographic area. Somewhere like Arizona, where there are entire ghost towns of new construction homes, will take longer to reduce their inventory than other places (like the Salt Lake Housing Market) where fewer homes were built.

While I am no economist and cannot predict when the housing turnaround will occur, sooner or later the pent up demand and shortage of new home builds will lead to a recovery. In fact William Wheaton, professor of economics at Massachusetts Institute of Technology, believes that when the market recovers, "Housing construction will not only rise, but it will stay high for a while, which didn't happen in previous recoveries".

You can read the original Housing Shortage article on my Salt Lake Real Estate Blog.