As families try to flee cities for suburbs, they are finding few homes for sale.
Real estate agents blame homeowners for not selling. But homeowners in the suburbs are behaving rationally. They know that if they sell, they’ll have trouble finding an affordable replacement home.
The problem is that there aren’t enough homes. And it’s been getting worse for decades.
The chart below shows the number of homes that builders started each year, divided by the total number of households reported by the Census Bureau each year.
New Home Construction Peaked 50 Years Ago
Source: Federal Reserve
From 1959 to 2019, the number of households increased from about 51 million to 128.5 million. As the population increases, there needs to be an increase in the supply of homes. But construction hasn’t kept up.
Last month, builders started construction at an annualized pace of 1,416,000 homes. In 1959, new construction added 1,657,000 new homes.
The pace of home construction is just one-third as much as it was 60 years ago. Adjusted for population growth, the peak in construction was almost 50 years ago.
There are some understandable reasons for the decline in homebuilding:
- Zoning restrictions account for some of the decline.
- Other regulations also make construction difficult.
How Lack of Construction Affects Homeowners
No matter what caused the decline, the result is predictable. Homes cost more now than they would if construction had kept up with the pace set in the 1960s.
With supply constrained, prices will continue to rise. This is good news for those who already own homes. They can let their homes build wealth since it is expensive to find a replacement home.
But it’s bad news for young families hoping to buy their first home. Many are priced out of the market.
There is only one solution to the lack of housing. The country needs more homes. But there are so many obstacles in the way of that solution that relief is decades in the future.
Michael Carr is a Chartered Market Technician for Banyan Hill Publishing and the Editor of One Trade, Peak Velocity Trader and Precision Profits. He teaches technical analysis and quantitative technical analysis at New York Institute of Finance. Mr. Carr is also the former editor of the CMT Association newsletter, Technically Speaking.
Follow him on Twitter @MichaelCarrGuru.