The market is missing up to 6.5 million new single-family homes, the result of more than a decade of underbuilding relative to population growth, according to a new report from Realtorl.com
Realtor.com’s latest report analyzing the housing supply gap found that despite overall housing starts slowing in 2022, completions climbed to the highest in 10 years. Also, multi-family home construction picked up in 2022, reaching more than one-third of all housing starts by the end of the year.
Key highlights:
- U.S. housing markets continue to struggle with a sizable shortage of new homes, a result of more than a decade of under-building relative to population growth.
- The U.S. saw 2.06 million household formations, resulting in 14.6 million household formations between 2012 and 2022. In this time period, 13.3 million housing units were started, and 11.9 million were completed.
- The total housing starts count includes 9.03 million single-family and 4.2 million multi-family homes. Housing completions include 8.5 million single-family homes and 3.4 million multi-family homes.
- The gap between single-family home constructions and household formations grew to 6.5 million homes between 2012 and 2022. However, including multi-family home construction reduces this gap to 2.3 million homes.
- Multi-family home construction picked up, reaching 35.1% of all housing starts by the end of the year, a level not seen since 2015.
- The rate of overall housing starts slowed in 2022 while completions climbed. Roughly 1.0 million single-family homes were started, which is 10.6% fewer than in 2021, though still more than in any other single year back to 2012.
- Multi-family home starts picked up, reaching 545,500, up 15.0% compared to 2021, and up 47.8% compared to the 2012-2021 average.
- In 2022, 1.4 million housing units were completed (+3.8% YY), including 1.02 million single-family units (+5.4% YY) and 370,700 multi-family units (-0.2% YY). The overall number of home completions and the rate of single-family home completion were both the highest in the last 10 years.
- Builders’ sentiment dwindled, reaching the lowest level since April 2020. Sentiment improved slightly in January 2023 as mortgage rates dropped, though the index remained near recent lows.
- New home affordability continues to drop rapidly with just 10% of new homes sold for less than $300,000 in Q4 2022, down from 41% in Q4 2019.
Major takeaway:
“Cooling buyer demand and builder confidence led to slower single-family construction and a shift in builder focus to multi-family last year,” said Realtor.com Economic Data Analyst Hannah Jones. “While that brings greater supply to the market, most of it will be used for rentals and won’t address ongoing affordability challenges in the for-sale space. Additionally, these homes take an average of 15 months to complete, and so their impact won’t be fully realized for some time.”
Realtor.com Chief Economist Danielle Hale added that “As inflation and mortgage rates likely soften later this year, buyers are likely to return to the market and be in search of an affordable home, and the ongoing housing supply shortage will only continue to put pressure on the market. The good news is that overall inventory levels are increasing from their pandemic lows, and with less competition in the market from other shoppers today some homebuilders are now offering prospective buyers incentives that may help some new home buyers find success in this challenging market.”
For the full report that includes more in-depth data and charts, click here.
