Wednesday's release of new home construction data showed a sharp rise in homebuilding activity, but it might not be enough to meet demand.

A survey by the National Association of Realtors (NAR) shows strong preference among consumers for single-family homes in the suburbs, but those homes are getting hard to find.

For the last year there has been a decline in inventories of existing homes for sale. For far longer, new homes – especially those with entry level prices – have been even harder to find.

The NAR survey data reveals that 85% of current homeowners and 75% of renters would prefer to buy a single-family home. And they aren't looking for homes in the city. Only 15% of homeowners and 21% of renters would choose to by a home in an urban area.

Plenty of demand, but not supply

The NAR's chief economist, Lawrence Yun, says the current imbalance between supply and demand has caused prices to rapidly escalate in several of the “hot” markets in the U.S. There's plenty of demand, Yun says, but not enough supply. He says homebuilders need to start turning out more single-family homes.

But another housing economist, Jonathan Smoke, of Realtor.com, sees trouble in this week's report on housing starts.

“It is somewhat concerning that the pace of starts is now greater than the pace of permits,” Smoke said in an email to ConsumerAffairs. “This could be a one-month anomaly given the tendency of the starts data to be revised, but if the pattern holds, it would signal slower growth ahead in construction activity. That is not what the market needs to address the undersupply of both for sale and for rent units on the market.”

Post housing bubble slump

New home construction slowed almost to a standstill in the wake of the financial crisis and the collapse of the housing market. When it resumed, builders tended to concentrate on more expensive homes because entry level houses are less profitable.

The lack of new homes, coupled with fewer homeowners putting their houses on the market, has created a shortage in some markets, and bidding wars by potential buyers. Yun worries it could eventually hurt the housing market.

“A high number of homeowners are expressing that it’s a good time to buy and this sentiment is no doubt being fueled by the $4.4 trillion in housing equity accumulation in the past three years,” Yun said in a release. “On the other hand, accelerating home prices and the perceived difficulty in obtaining a mortgage appears to be tugging at the confidence of renters.”


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