America’s Housing Shortage Expected To Reverse Into Oversupply

A perennial housing shortage in America is set to dramatically reverse in the coming years due to a series of demographic changes, a new industry paper predicts.The current housing shortage dates back to the great financial crisis that began around 2008. Builders, in the aftermath, didn’t want to build, after being burned in the housing collapse caused by the sharp downturn in the market. That led to fewer homes being built and rapidly rising home values that made it tougher for younger buyers to buy their first home.Washington eventually paid attention to the issue and — in a rare bipartisan effort — passed a housing bill that became law this week. The focus of the law is a set of measures aimed to unfreeze the market by making home construction easier. But the new Mortgage Bankers Association paper suggests that the problem is already self-correcting.Household growth — the primary driver of long-run housing demand — is expected to slow due to the Baby Boomer generation aging, birth rates remaining below replacement level, and reduced immigration.The potential for oversupply is a concern for the mortgage industry because fewer households purchasing homes means fewer loans. For existing homeowners, falling prices would erode equity, limiting access to cash-out refinancing and increasing the likelihood of selling at a loss. It could also push more of today’s homebuyers underwater on their mortgages with recent borrowers and those with low down payments most vulnerable.The paper’s authors say because household formation is expected to slow notably, and the population base that would absorb new units is growing more slowly than the current pipeline suggests, those future impacts are not being fully registered in market forecasts or policy conversations.“I don’t want to say the paper’s a warning, because that’s not the intention,” a co-author of the paper, Eddie Seiler, told The New York Sun. “We just wanted to come up with some sort of projections,” he added.The paper, however, states that if construction activity remains elevated in the coming years, it could lead to a growing oversupply of housing. It is already happening in some markets. “For instance, Austin, Texas, you do have falling prices. They’re not falling at any tremendous rate but, it is a warning,” Mr. Seiler said.One big factor in the expected drop in housing need is a sudden shift in immigration predictions. Trump administration actions have led immigration to drop to much lower levels than previously projected. The Congressional Budget Office’s projections for future immigration levels have recently decreased. It now projects that overall population growth will drop to near zero in the next 25 years as immigration levels remain flat at about a third of a percent a year and lower birth rates mean deaths will outnumber births across the country.Harvard University’s Joint Center for Housing Studies had to update its own projections of homeownership rates and household growth due to the new federal figures. An addendum to its August report now raises the possibility of there being modest declines in overall home ownership rates over the next decade if immigration rates remain low.Dropping birth rates are another expected long-term drag on housing needs. The Centers for Disease Control and Prevention says fertility rate is at an all-time low of 1.6 births per woman. That is well below the 2.1 replacement level. Birthrates are down 23 percent since 2007 as Americans wait longer to start forming families and are having fewer children. That trend is expected to continue and possibly accelerate. The annual number of deaths will exceed the annual number of births starting in 2030 and if immigration is stripped out of the numbers, the nation’s population would begin to shrink that year.Soaring housing costs has been cited numerous times as a major factor in women holding off or choosing not to have babies. That current housing issue could come full circle with a future oversupply.Younger Americans are also less likely than older ones to say buying a home is a good investment, recent Pew research found. A study released in June found 14 percent of Adults under 40 say owning a home is a bad investment and 18 percent say it is neither. They cite stocks as a better long-term investment. Another long-term trend that will reduce the need for more housing is the Boomer generation gradually passing down their homes to their children over the next two decades. The authors of the study expect it to be a slow process, so they don’t expect a sudden flood of homes hitting the market. But, because many older Americans are holding onto their homes longer, they are going to be handed down to family members who are most likely going to be homeowners. That suggests that a large share of homes will eventually flow into the broader market.“It’s not a silver tsunami. It’s a silver glacier, and we found that it’s even slower than previously expected so we don’t expect any, any large effects and prices falling as seniors exit their homes,” Mr. Seiler said.While the trends show a potential housing glut in the coming decades, Mr. Seiler says the new housing law was not a waste of time. He says it corrects a lot of issues related to zoning and attempts to block building at the local level.“It corrects, through some sticks and carrots, basically what’s happening at local levels, and I think that’s important because you’re building in a specific area and the developers and the builders will do their market studies whether there is demand out there in that area,” Mr. Seiler said. He says it is important to build, and usually high demand also goes with where the jobs are and if there isn’t enough housing where the jobs are, it creates an inefficiency in the labor market.

America’s Housing Shortage Expected To Reverse Into Oversupply

America’s Housing Shortage Expected To Reverse Into Oversupply

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