Boom, Bust, Boom?
I found this article by Lawrence Yum, chief economist of the National Association of Realtors, thought-provoking. I have wondered for some time how the lack of housing starts will affect the housing market in the future. It appears that a vacuum is being created and the boom and bust is heading for boom, bust, boom. Mr. Yum states that “home builders must add 1.6 to 1.7 million housing units each year to accommodate typical US population increases and replace demolished homes.” Is there any reason to believe that the need for 1.6 to 1.7 million housing starts is no longer accurate? How is it that there are “700,000 empty units above normal levels” if the cumulative deficit is 730,000?
I think some of the reason is the effect of this recession on household creation. As people lose their jobs, some are forced to move in with relatives. As high school or college graduates don’t find jobs, they don’t move out of their parents’ home. Who wants/ needs a second home when it’s value keeps dropping and it’s tough enough to keep the payments current on the primary residence? But all this is temporary and will even out over time. Unless there is a long-term reason why the need for 1.6 million housing units per year is no longer valid, simple supply and demand is going to increase home values. Keep in mind that many builders cannot build and make a profit at current valuations. In order to increase housing production, prices must go higher.
Please find link to this article for more information:
http://www.realtor.org/rmonews_and_commentary/Economy/1006_economy_housingshortage
