Summary: The recovery of the American economy is generating great housing demand which eventually might lead to an increase on housing prices due to a very slow building rhythm.
In
a new analysis the National Association of Realtors measured whether
new home construction has kept up with job creation to determine the
impact of construction on housing supply.
The
analysis shows that the labour market, which is a key to overall
economic health, has recovered all of the eight million jobs lost
since the recession and that new home construction is underperforming
in 32 states and the District of Columbia.
Lawrence
Yun, NAR chief economist, says there’s a strong relationship
between new jobs and an increase in demand for housing.
‘Historically, there’s one new home construction for every one
and a half new jobs.
He
added that their analysis found that a majority of states are
constructing too few homes in relation to local job market conditions
and that the disparity was the greatest in Florida, Utah, California,
Montana and Indiana, where job creation has been particularly strong.
‘A persistent lag in new
home construction will lead to faster home price growth, which will
negatively impact housing affordability,’ said Yun.
Additionally, real estate
agents home price growth expectations in the first quarter of 2014
was generally strongest in states facing housing shortage conditions.
Lack of inventory has pushed prices up and put pressure on
affordability, especially for first time buyers.
‘Agents
have an intuitive sense of how fast prices are likely to rise from on
the field observations. Their price outlook largely shows gains to be
the strongest in states with slow home construction in relation to
job growth,’ Yun pointed out.
Looking ahead, Yun said that
home builders will have to produce amidst the current challenges
facing the building market. Limited access to credit for smaller
builders, rising construction costs, concerns about the re-emergence
of entry level consumers to the market in the face of student debt
and a tight credit box, and general decline in affordability and
purchase power over the last year.
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