If you’re ready to buy a new home and struggling to find something you like, chances are you’re wondering, “When will the housing shortage be over?” – and you’re not alone. It’s not just a California housing shortage, the entire country is experiencing extremely low inventory on the real estate market. The housing market has turned into a feeding frenzy of home buyers fighting over an extremely limited number of homes for sale and a lot of house hunters are wondering how much longer this situation will last. The answer is another 6 years at least.
Why is there a housing shortage?
There are several factors contributing to the housing shortage, including homebuilder declines over the past decade or so, the homeowner trend of aging in place, and of course the interruption that COVID brought to the market. The popularity of rentals on sites like Airbnb and VRBO make it extra enticing for homeowners to hold onto properties, and the rise in multigenerational households has all helped tighten inventory.
Homebuilder declines are one of the most significant factors, beginning after the Great Recession according to data from the US Census Bureau. They began recording housing starts in 1959 and for the first 48 years on record, home builders completed an average of 1,102,938 homes per year. However, they became extremely cautious after the market crash, and from 2007 to 2020, builders only started 708,186 homes per year, well below the established average. If we do the math, the annual shortfall comes to 5,526,525 homes from 2007 to 2020. Last year, builders picked up the pace and started 990,500 homes, but that’s still below the historical average of 1.1 million.
Assuming U.S. homebuilders can make up for lost time and crank starts up to 2 million homes per year, we still won’t achieve a supply-demand balance for another six years.
Will there be a housing crash in 2021?
The last housing market crash was in 2007 when the bubble burst and prices came crashing down from an inflated high, causing a wave of foreclosures. It happened because, in the early 2000s, lenders were strongly encouraged by the federal government to loosen, and at times abandon, traditional lending practices in order to help as many people as possible buy homes. These risky subprime loans originated without proper regard to credit history, employment status, or down payment funds.
There is unlikely to be a housing crash in 2021 because lenders have tightened their standards which means that homebuyers purchasing in today’s market can afford their mortgages. And while there are some homeowners struggling financially from the pandemic and taking advantage of the CARES (Coronavirus Relief and Economic Security) Act, providing foreclosure protections most likely until the end of 2021, the outlook isn’t so bleak. Homeowners are more financially stable and have more equity in their homes.
Will housing prices drop in 2022?
Southern California housing prices just hit an all-time high in April. And while its impossible to know if housing prices will drop in 2022, the drastic home price gains we’ve been experiencing can’t last forever. Home prices are expected to level off in 2022 as more inventory comes onto the real estate market and the entire economy continues to recover from the pandemic. Once the moratorium on foreclosures ends (likely at the end of 2021), homeowners who can no longer afford their homes may be forced to sell, opening up more inventory as well.
Our extreme seller’s market created by severely limited inventory and sky-high buyer demand has pushed up home prices over the last two years, and in 2022 we can expect to see the housing market ease. So while the answer to “When will the housing shortage be over?” is six years, within the next year, we should see inventory beginning to climb back up.