economists predicting supply shortfall in american housing market
News Posted On: 22 February 2010
Economists in the US are predicting that a major housing shortfall will hit the market this year, which could be good news in terms of pushing prices up, but is obviously going to be bad news for anyone that can't find somewhere to live.
The problem will arise, economists say because builders have cut-back massively due to the downturn, and have not been building enough to keep up with population growth, let alone people coming into America to live. According to Brian Wesbury, chief economist at First Trust Advisors only a third of the homes that will be needed have been/are being built.
Wesbury figures America needs to add 1.5 million housing units per year just to keep up with population growth plus another 100,000 for fires and tear-downs, et al, we need 1.6 million or more per year. Right now we’re down to about six and a half, seven months’ inventory, whether you look at new homes or existing homes. Housing starts are now between 500,000 and 600,000 a year.
His fears were echoed by William Strauss, senior economist at the Federal Reserve Bank of Chicago:
“Kids who have graduated are mostly still living at home, more people are sharing houses and divorce rates go down in a recession. It’s a lot cheaper to be together than to separate,” he said. “The housing market is looking better on affordability measures. After World War II we had a boom with 170 million people living in this county. Now we are over 300 million, and we have fewer houses for these people to live,” said Strauss.
According to Wesbury, this makes housing a great investment over the next few years.
“I think one of the secret investments, if you will, over the next decade is going to be housing. It is extremely cheap, inflation is on the way. But people are running away from it. You know, it’s that old adage, ‘When there’s blood in the streets, that’s when you invest.’ And this is the time, I think, for real estate,” Wesbury said.
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