A lot of people have been saying a record number of houses is being built in the United States right now and those houses will hit the market soon causing inventory to spike. The truth is there are a record number of “properties under construction” right now but there is much more to the story and I do not see a record number of houses coming on the market or being built. The reason there is a record number of houses under construction is that it takes way longer to build a house now. I think there are other new construction stats that are much more telling for how many new houses will come on the market.
Are there a record number of houses being built?
You will hear from many media outlets and social media influencers that there is a record number of houses being built right now. They claim this will increase inventory and could cause a crash. However, that is not true. There is a record number of properties under construction right now. What does that mean?
When you look at new construction statistics most of them include total housing units, which means you are looking at single-family houses, apartments, duplexes, condos, etc. Each housing unit is counted in those stats and we need to look at just houses being built if we want to see how many houses are actually being built. The chart below from the St Loius Fred bank shows the difference between all housing units being built and single-family homes being built.
You can see there is a record number of housing units under construction, but there is not a record level of houses being built. The United States has a massive shortage of houses right now. Building apartments will not help solve the house shortage issue.
How many houses are being built?
The big issue I have with the properties under construction statistic is that houses take so much longer to be built now than they did in the past. If it still took 6 months to build a house and we had a record number of houses being built that might be something to be concerned with but that is not the case.
In the chart above I added a line for single-family houses completed. When we look at these numbers the story starts to change drastically. You can see the green line shows that while we are building more houses now than in the last ten years, prior to that they did not build this few unless we go back to 1993! It is taking much longer to build homes so the stat that shows “houses under construction” does not mean what it used to and in reality, much fewer homes are being built than average. This comes after years of record low building, all while the population keeps increasing.
Right now there are 800k single-family houses being built in the US. If all of those houses are built in a year that would mean we add 800k houses to the market. We can build houses a little faster and about a million single-family houses were built in 2021. About 6 million houses sell each year and some estimates say we are at least 5 million houses short. To catch up, we don’t just have to build one million houses a year because we normally build even more! We would have to build millions of houses a year just to start to catch up to the current demand.
How many houses are going to be built in the future (housing starts)?
Another stat that we should look at more than houses under construction is housing starts. Housing starts show new housing permits being pulled and how many housing units may be completed in the future.
The chart above shows us housing starts for single-family verse all housing units. Again, we can see that single-family homes are becoming a smaller share of the housing units being built. You can also see there is not a record level of new housing starts and single-family housing starts seem to be about average after record low building for years.
What is even more problematic with the housing starts numbers is that we already know it takes longer to build a home now and average housing starts will equal below-average houses completed because of this. Another disturbing trend (if you want more houses) is that the number of starts dropped off significantly in May 2022 after interest rates increased. High-interest rates tend to slow down building which we are already seeing.
Are investors buying all the houses?
Something else I hear all the time is that investors are buying all the houses and that is why there are not enough for homeowners or why we have a housing shortage. I think it is pretty obvious by the severe lack of building why we have a shortage but I will address the investor question as well.
This chart is from my Instagram account, which posts stats like this all the time and other real estate investment advice. The headlines tell us investors are buying all the houses and leaving none for the owner-occupants but the opposite is actually true. The percentage of owner-occupants has been increasing since 2016 (65% compared to 63%). Owner-occupants are buying the houses and are primarily responsible for the bidding wars as well. Investors don’t like to overpay for houses or bid over the asking price unless the house is an awesome deal already.
I flip houses and have rentals myself and most of the houses I buy cannot be bought by owner-occupants because they need too much work or are tenant occupied already. However, 39 out of the last 40 houses I have sold have been sold to owner-occupants and I have not had one of my houses bought by an investor over the asking price after 20 years of selling flips (over 230 houses).
Not only are we building more apartments now but there are more people who want to be owner-occupants and live in a house, not an apartment.
While one stat might make it seem like the United States is building a ton of houses and they will bombard the market soon, just about every other stat says we are not building enough houses. In fact, we are not even building as many houses as we normally do in a normal, market, let alone a market that has a massive shortage of houses. I cannot see any scenario where there is a massive number of new houses coming on the market in the next few years. I think this means we will see continued low inventory and a shortage of houses, even if the economy takes a hit and rates increase.