Home construction rarely matches the actual demand for new homes, which can change quickly – there’s often too much or too little. Because the US population grows one percent per year about 1.5 million new homes are needed every year. During the boom of the mid-2000s, two million homes were built per year; at the bottom of the bust, that number was 600,000.
In 2012, construction was up to 800,000 homes. This is a clear indicator that demand is even higher and will continue higher for years. Home prices will be rising even when more construction takes place. The economic effect is self-reinforcing because most of the cost of building a new home is in the wages paid to the workers, who in turn can afford a better home for themselves or spend money on cars and other stuff.
It will take a while, maybe five years, before we get back to building 1.5 million homes per year. During this period the economy will grow at a moderate rate and home prices will steadily increase. After that, things probably will start to get crazy again.
Leave a Reply