Here’s Why the US May Have a Housing Boom for the Next 5 Years
The United States is just at the beginning of a housing boom that could last for the next five years. Of course, most folks who are either homeowners or are in the market to buy a home understand that prices have gone up quite substantially over the last year. Indeed, the Case Shiller 20 city average of home prices is up about 17% compared to last year. The US only saw annual price increases like this in the 2002-2005 housing boom period.
But, what we are focusing on here is not price increases necessarily, but actual housing construction activity and all its knock-on economic effects. In contrast to the early naught housing boom that was at least in part driven by shoddy lending standards, this one appears to be squarely driven by an utter lack of housing inventory. As readers can see in the next chart, existing houses for sale per working age adult have never been lower in the history of our dataset. Houses for sale per adult are a fraction of the level that existed during the 2002-2005 housing boom.
This lack of inventory, as opposed to price pressures, appear to be a larger explanation for the deteriorating sentiment of homebuyers recently. It’s true that the University of Michigan’s “good time to buy a house” survey hit a record low in June, but we also observe that housing affordability does not necessarily appear to be the primary driver. Indeed, not only is absolute housing affordability at levels consistent with or better than most of the 2009-2020 period, but income-adjusted mortgage payments for new homebuyers remain very accommodative. For this we can thank 30-year fixed mortgage rates that are below 3% nationally. Clearly, another year or two of 17% price increases, or rising mortgage rates, would eat into housing affordability in a huge way. But we think a more likely outcome is that building activity accelerates on a sustained basis just as soon as supply chain disruptions ease around materials, appliances, and labor.
