Is A Housing Shortage Coming?

    According to CNNMoney.com, James Gaines (a real estate economist with Texas A & M) believes that there may be a housing shortage coming.  The shortfall  in new home building has been masked by a weak economy.  Once the job market rebounds, people will look to have their own homes again.  The pent-up demand could get unleashed on unprepared markets, causing shortages and rising local prices.

    Household formation (the technical term for people moving in together) has been on hold during the past few years as young people have been unable to find jobs.  In the past, an average of 1.3 million households were formed each year.  In 2009, only 398,000 new households were formed – only one quarter of the number formed just two years earlier.  Gaines feels that the decline in household formation is artificial as many young people are moving in with their parents.  This trend makes one think that the demand is coming once the economy rebounds.

    The people, who are doubting a new bubble is near, point to the large amount of inventory.  As many as 7 million homes are vacant and not for sale, leading one to believe that these properties will provide a cushion to offset the demand.  The key is getting through the exisiting inventory.

    The inventory can be deceiving for two reasons:  the homes may be beyond repair and people may not want to live in these hard hit areas (like Detroit neighborhoods and California exurbs).  These hard hit areas are locations where many people do not want to live.  Combine this with the difficulty of getting a loan in today’s climate, and there is a questions when this demand will take over – creating uncertainty in the market.

    The good news for the Philadelphia area is that our market is unlike areas that were overbuilt (think Las Vegas, California, Florida & Arizona).  It is not easy to build new here, which make us a prime candidate for demand to increase when the economy rebounds.  I do not know if a housing shortage is coming anytime soon, but I see signs that the local market is starting to rebound, but very slowly.

    Trackback from your site.

    Leave a Reply