NEW YORK (MainStreet) — Three years of potential production down the drain: That’s what the National Association of Home Builders announced when it released its conclusions that more than two million new homes weren’t built because of the Great Recession.
Needless to say, that setback will delay a full recovery for the housing – and homebuilding – sector, and will likely drive up prices for new homes as tightened supply fails to meet the increased demand of a growing economy.
NAHB economists, in a new study released on Feb. 21 called “Pent-Up Housing Demand: The Household Formations That Didn’t Happen – Yet,” say that about 2.1 million homes weren’t built during the Great Recession (from 2007 to 2009) that would have been expected based on historical trends. The Federal Reserve estimates a higher number, pegging the data at three million homes.
The NAHB isn’t saying those homes will never be built, just that the recession delayed that from happening. The encouraging news for the housing market and the overall economy is that “housing demand will quicken as household formations catch up from the recession-dampened levels,” the report states.
Economists at the nation’s primary home-building association have a strong theory that the current housing reality is a short-term trend. They say that Americans have been “doubling-up” and moving in with family and friends to “withstand the weak economy,” but sooner or later, especially as more unemployed Americans go back to work, many of those belt tighteners will forego Mom and Dad’s basement to buy new homes again.
This "pent-up demand" for new homes will increase significantly, they say, but there is a major catch: The nation’s homebuilders may not get the credit they need from banks and lenders to actually build the nearly two million un-built homes that the market will need.
"There should be a sense of urgency to restore the capacity of a fully functioning housing industry to meet the demand that is looming not that far out into the future," says NAHB chairman Bob Nielsen. "Instead, builders must contend with severely curtailed access to the credit required to even begin moving into the planning stages for housing that will be in strong demand by the time it is completed."
A tighter new home and apartment climate might counteract any effects of a resurging economy by driving prices for new homes and apartments up.
"It can take a few years for some of these larger projects to be built, and already we are beginning to see apartment vacancies tightening up in many major markets,” Nielsen says.
Some of that slack is already being picked up, though, by new homes. The Commerce Department reports that national housing starts rose 14.6% in January, the highest in four months. Most of the building went to multi-family housing units, but progress is progress.
"We read today's report as an indication that new home construction remained stable at a low level heading into the new year, which is a positive outcome considering the ongoing challenges builders face in obtaining financing for new projects and the above-average snowfall in many states this January," explains NAHB chief economist David Crowe. "The numbers also confirm what our latest member surveys have told us, which is that builders see spotty buyer interest, but remain very cautious as credit remains tight and buyer confidence uncertain."
If the economy gathers momentum and more people find jobs, the current over-supply of housing will quickly become scarcity, as more of those “doublers” look for their own living arrangements. That would really help the housing market, and while it might lead to more expensive home prices, it may just give a struggling economy a new lease on life.
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