New Construction: Low Inventory & Pent Up Demand Could Cause Shortage

According to Lawrence Yun, Chief Economist for the National Association of Realtors, there has been persistent discussion of the housing inventory overhang and oncoming shadow distressed inventory that is projected to be reaching the marketplace in upcoming months.  The number of existing homes available for sale, including foreclosed properties that show up in multiple listing services and those homes requiring short-sale approvals, was 3.49 million at the end of February.  The inventory is expected to climb further,  affected by the normal seasonal factors of more homes getting listed through the spring and summer months, to around 4 million by September.

However, one aspect of the housing inventory that is rarely discussed is the 50 year low on newly built home inventory.  Homebuilders have greatly cut back on production in the past 4 years.  As a result the number of new home inventory is quite low, as the chart below illustrates.  There is always a subset of consumers who insist on buying only new products.  If or when the housing recovery momentum picks up then there could be a real dearth of newly constructed homes to choose from.