BAM Key Details:

  • A new report from Realtor.com shows a housing shortfall of 7.2 million units, due to more than a decade of underbuilding. Including multi-family home construction reduces the gap to 2.5 million homes.
  • The increase in multifamily construction has put more rental units on the market, exerting downward pressure on rents.
  • Survey results show today’s new home buyer is more likely to be younger, wealthier, and more pet-friendly compared to the non-new home buyer. 

Realtor.com just came out with a report highlighting the current housing shortage in the U.S. Despite the increase in new construction, household formation over the past decade has outpaced housing starts, resulting in a shortfall of 7.2 million homes. When multi-family home construction is included in the analysis, it reduces the gap to 2.5 million homes. 

Realtor-dot-com_Cumulative-shortage-of-new-home-supply-chart

Source: Realtor.com

That said, the increase in multifamily construction has put more rental units on the market, suppressing rent growth, even as the uptick in single-family construction means more options for home shoppers—especially in some U.S. markets. 

The U.S. is in a long-term housing shortage with the construction of new homes failing to keep pace with a growing population. While a recent uptick in new construction has the potential to alleviate the historically low level of homes for sale on the market today, it’s going to take some time to close the gap. That said, the elevated level of both single- and multi-family construction coming to market this year is likely to put downward pressure on rent prices in many markets, welcome news for renters. It also means that the higher than usual share of new homes for sale is likely to continue, giving home shoppers willing to consider new homes more options.

Danielle Hale

Realtor.com Chief Economist

Despite the uptick in building, household formation exceeds single-family construction

In 2023, household formation grew by an additional 1.7 million, resulting in 17.2 million total new households between 2012 and 2023. 

Last year (2023) brought 947,200 single-family housing starts and 472,700 multifamily housing starts, bringing the total number of new housing starts between 2012 and 2023 to 14.7 million homes—about 10 million of which were single-family. 

Meanwhile, the gap between those single-family housing starts and household formation during that period grew from 6.5 million (2022) to 7.2 million at the end of 2023. Because while households grew at a steady pace, single-family home construction slowed down. 

But while the gap has widened, this is the third smallest single-year gap between the number of households and housing starts since 2016. 

When we look at total housing starts—both single-family and multifamily—the gap between that number and the total number of households formed has grown from 2.3 million housing units between 2012 and 2022 to 2.5 million at the end of 2023. 

Estimates from 10 additional sources on the U.S. housing shortage

Realtor.com isn’t the only source to analyze the housing supply shortage. ResiClub founder Lance Lambert compiled a list of housing shortage estimates from different sources.

Here they are, briefly summarized: 

  • Fannie Mae—According to estimates reported in October 2022, the U.S. housing market is underbuilt by approximately 4.4 million units
  • Zillow—In a 2023 report, Senior Economist Orphe Divounguy estimated a housing unit deficit of 4.3 million units
  • Bank of America—In January 2023, BoA Institute researchers estimated a housing shortfall of at least 4 million units due to underbuilding. 
  • Freddie Mac—In a May 2021 report, Freddie Mac estimated a housing supply deficit of 3.8 million units for the fourth quarter of 2020. 
  • Morgan Stanley—In October 2022, based on “conservative assumptions,” Morgan Stanley analysts estimated housing was “structurally short” by 2 million units. With more “aggressive” assumptions, that estimate grew to 6 million units. 
  • J.P. Morgan—In a July 2023 report, Joe Seydl, J.P. Morgan Private Bank senior markets economist, estimated a housing shortfall in the vicinity of 2 million to 2.5 million units
  • Moody’s Analytics—In his October 2023 study, chief economist Mark Zandi estimated an undersupply of 1.7 million units. 
  • John Burns Research and Consulting—In a report published in early 2023, Chris Porter, chief demographer, estimated a housing shortfall of 1.7 million homes
  • Zonda—Analysts put underbuilding at around 1 million housing units
  • The National Association of Realtors®—NAR Chief Economist Lawrence Yun estimates U.S. housing is currently underbuilt by 3 million to 4 million units

Yun told ResiClub: 

America is facing a housing shortage due to multiple years of underproduction in relation to U.S. population growth. That is why home prices hit a new record high in 2023 even as mortgage rates rose. We estimate around a 3-to-4-million-unit shortage in the country.

Lawrence Yun

NAR Chief Economist

Signs of recovery in affordable new for-sale inventory—especially in Sunbelt metros

According to Realtor.com’s report, in 2022, only 38% of new homes sold for under $400,000. The following year (2023), that share rose to 43% as more builders shifted toward more affordable housing, including smaller builds and modular construction. Many also offered buyer incentives like price cuts and mortgage rate buy-downs in 2023 to drive sales. 

In 73 of the top 100 U.S. metro areas, single-family construction permits have lagged behind household formation. The 10 metro areas with the largest gaps between the two:

  1. Deltona–Daytona Beach–Ormond Beach, FL
  2. San Antonio–New Braunfels, TX
  3. Palm Bay–Melbourne–Titusville, FL
  4. Allentown–Bethlehem–Easton, PA-NJ
  5. Grand Rapids–Kentwood, MI
  6. Stockton, CA
  7. Riverside, San Bernardino–Ontario, CA
  8. Providence–Warwick, RI-MA
  9. Bakersfield, CA
  10. Miami–Fort Lauderdale–Pompano Beach, FL

The top 10 list of metros with the largest gaps in single-family supply relative to population has three in Texas, five in Florida, and two in Washington state. Many of these metro areas have seen significant population growth due to their relative affordability and overall appeal. 

Though the potential gap in single-family housing supply is large in these markets, many of these less densely populated areas have leaned into multifamily housing—for rent or purchase. When we include multifamily permits, many of which are for rental properties, only 13 of the top 100 metro areas have seen faster household growth relative to permits over the past 11 years.

Profile of today’s new construction buyers

According to Realtor.com®’s New Construction Consumer Report, today’s new home buyers are younger, more affluent, and more pet-friendly compared to today’s non-new home buyers. 

While in years past new-home buyers have typically been boomers, today’s new-home shoppers are more likely to be millennials. Among survey respondents who purchased a new single-family home in the past 12 months, almost half (48%) were millennials. 

That said, while these new construction buyers tend to be younger, most of them have experience with home purchases. Speaking of last year’s new-home buyers, 75% of them had previously owned a home. 

Also, new home buyers are more likely to earn higher-than-average incomes, with 30% of them making $100,000 to $200,000 a year, compared to 22% of non-new home buyers. 

New home buyers prioritize newness, customizability, and location

Homebuyers are drawn to newly-built homes for three reasons: 

  1. Newness (all new appliances, flooring, electrical, etc.)
  2. Customizability 
  3. Resale value

After all, new homes generally come with fewer unpleasant surprises. 

And while price is obviously a top concern for those shopping new construction, location ranks higher, with 28% of new home buyer respondents putting a home’s location as their number one deciding factor, compared to 24% who were more concerned with pricing. 

When choosing a homebuilder, reputation rounded out the top three decision-making factors, coming right after location and price for potential buyers. 

In fact, almost half of the new home buyers surveyed (48%) said a builder’s reputation and ratings were among their top selection criteria, ranking higher than a home’s customizability and the timing of its availability. 

And nearly all recent buyers of new homes (91%) said they would buy a new construction home again. 

Agents: Be the Resource for Your Market

Byron Lazine covered the Realtor.com report on Wednesday’s Hot Sheet, driving home the importance of getting this information in front of your buyers and sellers. 

Because many are getting the wrong information. And, more than likely, they’re unaware of the potential cost of waiting for lower mortgage rates. 

It’s going to continue to exacerbate the problem we’ve had for 18 months, which is the lock-in [effect], it’s going to continue to push prices up in the spring market—not down. And waiting will cost more money in all likelihood.

Byron Lazine

Read the full report on Realtor.com for more information, including charts and methodology.