Is a Housing Shortage In Our Future?

In today’s Real Estate market, the thought of a housing shortage seems unfathomable.  There are way too many homes for sale and defaulting mortgages that may turn into foreclosures to make a housing shortage seem remotely possible.  What some people don’t realize is that there has been a huge drop in new home construction over the past few years.  This is the one thing that could make a housing shortage a reality.

According to Lawrence Yum, Chief economist of the National Association of Realtors, home builders need to add 1.6 million to 1.7 million homes every year to keep up with U.S population increases and replace demolished homes.  From 2003 to 2006, when the housing market was soaring, builders produced an excess of about 1.3 million units.

It was so easy for investors to borrow money and quickly buy up property that the excess building went unnoticed.  Once there was no more money to be borrowed and values dropped these investors were forced to get rid of their properties.  At this time, there is said to be up to 700,000 vacant units above normal levels.

The lack of new home construction in the past 3 years is a major problem that will need to be dealt with, especially if such tight restrictions on building and borrowing money remain.  There will be a time when we will see new household formation again and we will not be able to ignore a housing shortage.  On the up side, a housing shortage may cause home values to escalate.

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