For several years anyone trying to sell a house could tell you that it’s been a buyer’s market. With so many recent foreclosures coupled with a weak job market and tightened lending practices, the country has seen a glut of houses just begging to be sold. But could that all change as the economy turns around and more people find themselves with jobs, a little bit of savings, and a desire for homeownership?
According to a June 15, 2010 CNN Money article, “The nation is simply not building enough homes to keep up with potential demand. Just 672,000 new homes were started in April, an annualized rate and less than half the long-term run rate needed to meet the nation’s natural population growth.” Along that same vein, Brian Wesbury, chief economist at First Trust Advisors said in an interview with Steve Forbes, “We need one and a half million houses per year just to keep up with population growth.”
Perhaps the panic of a housing bubble may be years away, or may not even be a realistic issue. The fact that fewer new homes have been built can be explained by simple looking at supply and demand: less demand means less supply. The National Association of Home Builders reported that new home sales plunged 33% to their lowest level on record in May. With so much current surplus inventory and a myriad of glum economic reports, many doubt the validity of a true housing shortage.
Those who continue to support the idea that a housing shortage is coming look to the fact that many of the homes available from foreclosure may not be inhabitable or that people may not be willing to live in the areas where these houses are. According to the U.S. Census Bureau as many as 7 million homes are vacant, but not for sale. It could be that when employment levels stabilize and people are able to save for a down payment, they may want a new home and not a foreclosed one that has been sitting vacant for years.
Others have noted many individuals and families have moved out of their unaffordable or foreclosed homes and moved in with parents, relatives, or friends. When the economy recovers, these people will likely want to move into their own homes. Combine this with an ever-growing population and it is possible that a housing bubble could be on the horizon.
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