Will the Housing Shortage Continue?

Inventory has been in high demand for awhile in our area, creating a seller’s market that shows no signs of disappearing soon. The economic shutdown has only exacerbated the situation. Uncertainty created by the shutdown caused sellers to sit on their homes for April and May. This was bad for builder confidence, of course, and builders had regulations to navigate themselves.

Needless to say, this did nothing to help the supply close the gap with demand. Luckily, July marked resurgence (up 23.4% over the previous month) as buyers, sellers and builders returned to the market. This is probably all compensation for the previous months, of course. But it’s relatively good news. The often referred to “V-shaped” recovery is happening before our eyes.

This indicates a return to pre- shutdown form, which, as we know, was high demand and low supply. So where is it going to go from here? One trend to pay attention to is the relationship between households formed and housing starts. Basically, until housing starts outpace households formed, the housing shortage will continue. This is, of course, only one way to look at it. There are various other factors, but its a good rule of thumb.

Pre-covid, there was no reason to believe that housing starts would outpace households formed, or that supply would catch up to demand. And it seems that the shutdown has, if anything, made it worse, at least temporarily. People are clinging to their current homes. Tragically, one thing that could provide some relief for the intense supply-demand disparity is that some households may not be able to cling much longer. Businesses have closed, job markets have shrunk, and many people are relying on assistance to make their mortgages. Forbearance, stimulus checks, and unemployment have kept these people in their homes thus far. But the uncertainty about the immediate future extends to federal aid, as both major parties have given zero reason to believe that they’re acting with a sense of urgency.

If the aid dries up, people will be exiting their homes. Hopefully, most of them will simply be downsizing, rather than exiting the real estate market. So its hard to say how much this big “if” is going to impact the housing supply. Low mortgage rates are motivating Americans to make real estate moves now. As builders gear up to return to the full swing of the construction boom mode, there’s one dark horse to keep an eye on --- a lumber shortage.

If you’ve been to your local Home Depot or lumber yard lately, you’ve seen the prices of lumber. You might’ve also seen what is truly a rare sight for our area, and that’s low lumber inventory on the shelves. Obviously, this drives up the price of building homes, which could cause some owners and developers to cool their heels. So, increased hesitation could play a factor. But what’s really going to constrain builders is if the lumber supply can’t catch up soon. There simply won’t be any lumber to build with, at any price.

The unprecedented situation that the world is currently in makes it harder than ever to predict the market with any certainty, but reliable indicators say the shortage continues. If anything, it gets worse before it gets better. But stay on your toes, because in a strange scenario like COVID, there can be new factors everybody is overlooking, leading to major plot twists in what is still a very uncertain future.