Although existing-home sales have been basically flat this spring, demand for new homes has increased, resulting in a severe lack of inventory. This is partly because, as revealed in a report from the National Association of Realtors (NAR), construction firms just aren't building new homes fast enough to meet demand.
The report finds that ‘new home construction activity is currently insufficient in most of the U.S.,’ and says that home builders had better pick up the pace. NAR predicts that as the economy gains steam and new jobs are created, there will be more prospective home buyers looking to buy new in what is now a severely constrained market.
Although the report points out that home construction is not keeping pace with job creation – it was recently reported that the U.S. has recovered all of the 8 million jobs lost since the recession – it should be noted that most of the jobs that are being created today are at the low end of the pay scale. The report does not draw a correlation between new home construction and wage growth. The question is not so much whether a consumer has a job but whether they earn enough to afford a house.
Regardless, the report finds that new home construction is ‘under-performing’ in 32 states and the District of Columbia.
‘Historically, there's one new home construction for every one-and-a-half new jobs,’ says Lawrence Yun, chief economist for NAR, in a release. "Our analysis found that a majority of states are constructing too few homes in relation to local job market conditions. This lack of construction has hamstrung supply and slowed home sales.’
The disparity was the greatest in Florida, Utah, California, Montana and Indiana, where job creation has been particularly strong. Yun cautions that these states could face persistent housing shortages and affordability issues unless housing starts increase to match local job gains.
‘A persistent lag in new home construction will lead to faster home price growth, which will negatively impact housing affordability,’ Yun says.
Another critical factor is the size of the new homes being built. The U.S. Census Bureau released data last week showing that the median size of a new home in the U.S. had increased from 2,277 square feet in 2007 to 2,384 square feet in 2013.
In 1973, the median size was 1,525 square feet.
For more on the NAR report, click here.