Homes Continue Upward Pricing Pressure, WHY?

Livermore, CA

• 7 million new single family homes were built between 2012 and 2021, but 12.3 million households were formed in the same period.
• Single family homes are being built at their slowest pace since 1995
• Q3 full year guidance by Pulte was lowered for home closings because of supply chain issues.

Anyone looking for a home will tell you that options are low and and the demand is intense.

In the US we are 5 million units short of where we need to be. Between 1968 to 2000 the US built 1.5 million homes per year, but between 2000 to 2020 the US built 1.25 million. So you could say we have been heading in the wrong direction for decades. Now throw in labor shortages that began years before the pandemic. Supply chain issues over the past year pushing the cost of almost everything related to building and of course high land prices.

“The pandemic has certainly exacerbated the U.S. housing shortage, but data shows household formations outpaced new construction long before Covid. Put simply, new construction supply hasn’t been meeting demand over the last five years,” said Realtor.com chief economist Danielle Hale. “Millennials, many of whom are now in their 30s and even 40s, have debunked the industry’s ‘renter generation’ expectations.”

One of the nation's largest home builders just re-issued guidance down for Q3 citing supply chain issues.

“Despite the extraordinary efforts of our trade partners, the supply chain issues that have plagued the industry throughout the pandemic have increased during the second half of the year,” Pulte CEO Ryan Marshall said in a release. “We continue to work closely with our suppliers, but shortages for a variety of building products, combined with increased production volumes across the homebuilding industry, are directly impacting our ability to get homes closed to our level of quality over the remainder of 2021.”

On other bad news, builders simply cannot afford to build cheaper homes with rising costs. The average new home will cost $350,000 in 2021. This also places upward pricing pressure on the existing home supply. For the future we can expect to see continued demand and upward pricing pressure.