Skip to main content


Your resource for real estate industry news, updates, and tips from your friends at The CE Shop


The Dreaded Housing Shortage

posted onJuly 6, 2017
by The CE Shop Team
The causes of the housing shortage and what it means for today's real estate agents.

How a Lack of Available Real Estate is Affecting American Cities

Depending on which city you're in, available real estate might be very hard to come by. From Denver to Miami to Seattle to San Francisco, houses cost more than ever and there are far less of them than there need to be.

The big gripe lately is the lack of affordable housing, but the shortage applies to every aspect of real estate. There are too many buyers competing for too few houses, and it's a multifaceted problem that will likely take years more to right itself.

New Construction

At the end of October 2016, there were 20.2 million homes listed for sale, which represents roughly 4.3 months' supply. A balanced market is around 6 or 7 months' supply. As Forbes notes, the raw inventory count was down 4% year-over-year, marking two consecutive years of decline.

Over the last five years, the median home price has increased by 42% compared to the median household income increase of only 17%. With homebuying further out of reach for practically everyone, less people are moving and less current homeowners are convinced to move. 

Economically, there need to be about 1.5 million new homes built every year. In the 50 years leading up to the year 2000, there was an average of 1.51 million new units, and from 2001-2006, there was 1.8 million per year, which represents an oversupply that took us through the housing bubble and into the crash. Since then, average new home construction has only been about 870k per year, which is unsustainable. 

Things have been getting better, though. Most estimates put the housing shortage at lasting 3-4 more years until we can get back to that 1.5 million sweet spot. Once we do, hopefully real estate prices in big cities will even out once again.


For the 4th consecutive year, millennials are the largest group of home buyers, representing 34% of the homebuying market, which isn't surprising since millennials are America's largest living generation. Defined as between ages 20-36 in 2017, most millennials now have established careers and families and are ready to purchase a home. The problem is that many of them can't.

Since many millennials graduated college into the Great Recession or the immediate aftereffects of it, careers were stalled by unemployment or underemployment. While the economy has recovered in some parts of the country, many young people had their early earning years cut short as a result.

When they were unable to find a desirable job, many millennials went on to graduate school in an attempt to further specialize and gain applicable experience. On track to be the most educated Americans ever, a new danger has arisen: being overqualified for that dream job.

Another result of more costly education is a reliance on student loans, which well over half of all millennials use to pay tuition. It's hard to pay back large loans with a small or nonexistent paycheck, and when one starts to cut out extraneous expenses, saving up for a house is all but impossible. 

Which brings us to today, where many millennials don't have the disposable incomes of previous generations, and when faced with less houses than ever, bidding wars take prices to astronomical heights that leaves them backing out and continuing to live with mom and dad.

The Urban Appeal

While millennials might struggle to purchase, the older generation of baby boomers is struggling to sell. Previous generations were content to settle down in suburbs and commute to jobs in the city, but today's working class prefers the excitement of living in the city. Many baby boomers are looking to sell their homes in the suburbs and retire to a smaller place in the city, and budding wars commence when everyone's going for the same type of property.

The result is that many cities have outrageous prices in and right around the city core, but as you go into the suburbs your dollar can stretch a lot further. The new trend toward more urban and walkable cities has led to a real estate traffic jam. Due to the increased pressure, baby boomers are missing out on the place in the city and thus aren't listing their suburban house. Meanwhile, millennials can't stretch their paycheck enough to compete.

Even when those suburban houses do get listed, they're not at all what today's homebuyers want. It seems the decades-old tradition of McMansions is finally dying. No longer do buyers want massive cookie-cutter homes with the same layouts and appliances as everything else in the neighborhood. Spurred in part by a more environmentally-friendly mentality, many buyers today would opt for a smaller house and yard so long as it's in an interesting location that provides them with things to do outside of the home.

A Bubble?

Basically, housing is the one red spot in the economy right now. Unemployment's the lowest it's been in 16 years, but the economy is a slow-moving beast. It'll take some time yet to heal the wounds from the Great Recession, and until there are more houses available, the insanity is likely to continue. There are already some signs that prices have pleateaud around the country, and while the occasional economist has proclaimed that we're in a bubble, it's not a surefire thing. 

For one thing, the previous housing crisis was a result of people getting mortgages they couldn't pay, and that doesn't appear to be the case today. Let's hope this is a mere blip on the road to post-crisis recovery.

Source: Forbes


housing shortage real estate crisis Great Recession construction

       Facebook.png    Twitter.png    LinkedIn.png    Google+.png    YouTube.png    Pinterest.png




888.827.0777   |   © Copyright 2016 All Rights Reserved.