Four million homes. That’s roughly the gap between the housing America has and the housing it needs. It is a number I keep coming back to when people ask where the market goes from here. The shortfall didn’t appear last quarter and won’t close next quarter. It’s the residue of more than a decade of underbuilding, going back to the years after 2008, when the construction industry shrank and never fully rebuilt itself.
Math is stubborn. Americans form about 1.4 million new households a year. Builders start slightly fewer homes than that. The annual miss is small. It also never reverses, so it compounds. The official numbers understate demand: nearly two million younger adults who would have formed households in a cheaper market are still living with parents or roommates.
Then there’s the supply that exists but doesn’t move. Many homeowners with a mortgage hold a rate far below anything available today, and they won’t — they shouldn’t — trade a three percent loan for one above six. Economists call it the lock-in effect. In practice it means existing home sales have run near four million a year, against a long-run norm closer to five million. The freeze is thawing as life forces people to move anyway. But it’s thawing slowly.
The annual miss is small. It also never reverses, so it compounds.
The Federal Reserve is missing from this story for a reason. A rate cut changes monthly payments at the margin. It can’t build the homes that were never built, and if it stirs demand faster than supply, prices go higher. The shortage isn’t a monetary problem. It’s a construction problem, measured in land, labor, materials, and permits. Those problems take years to resolve.
I wrote last month about capital rotating back toward real assets, toward things that are scarce because they’re physical. Housing is the most personal case. The collateral behind every mortgage is a house, and houses are the scarce thing here. That’s why prices have held firm even with sales depressed, and why I don’t expect a dramatic break in either direction.
For most people the lesson isn’t a market call. If a home purchase is in your future, the binding constraint probably isn’t the headline mortgage rate. It’s the down payment, which now takes a typical household years of steady saving. That’s the part you control. Rates will wander. The shortage will persist. A balance you add to every month is what has you ready when the right house finally shows up.
Tellus is not a bank. Tellus is not FDIC-insured.
– Jeromee Johnson, President
