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How long will the home shortage last?

by | Aug 2, 2021 | Blog, Denver Real Estate Market, Real Estate | 0 comments

In this time of high-cost homes, homeowners often worry that prices will drop, leaving them underwater when it comes time to sell. But the shortage of homes across the nation – which is driving the price increases – isn’t going away anytime soon, according to Inman.

“Everyone is asking, ‘Are we in a Bubble?’ Whatever we call it, the question on everyone’s mind is: How long will the shortage last?” reports the real estate information website.

The company believes it will take a minimum of six years for the supply of homes to match demand.

The causes for the shortage are many. Inman reports that for the 14 years between 2007 and 2020, builders started fewer homes per year than the historical average. The shortfall was then “intensified by a combination of new developments.”

COVID forced people to work remotely, sending many looking for homes, and millennials began reaching home-buying age. Additionally, people are living longer, which means they are staying in their homes longer; “institutional investors entered the market in force” and “interest rates decreased,” notes Inman.

To determine when the market will balance, Inman does some math: “Statistics show we have a 5,526,525 housing starts shortfall. Assuming the historical annual home starts of 1.1 million homes per year as adequate — and that builders could build 1.5 million homes a year — the national home inventory would gain 400,000 starts per year to apply to the shortfall … 5,526,525 [divided] by 400,000 equals 13.8 years.”

That seems like an impossibly long time, but Inman doesn’t believe it will actually take that long. “Thinking optimistically and knowing a little about U.S. homebuilders and American ingenuity, builders might create an average of 2 million homes annually and achieve a supply-demand balance in about six years.”

The bottom line of all this multiplying and dividing? Home purchases will remain a safe investment for many years to come.

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