Lawrence Yun told Forbes what many housing watchers, investors, and professionals also know about the dwindling supply of affordable housing.
“The inventory of homes for sale continues to shrink,” said Yun, who is the chief economist for the National Association of Realtors (NAR).
“This shortage of housing inventory is the principal reason why home prices have been outpacing people’s income growth for the past five consecutive years,” said Yun, adding “From 2011 to 2016, the median home price will have risen by 42% compared to the median household income gain of only 17%. Such disparity hurts affordability and is unsustainable over the long haul. The only way to lessen home price growth is to bring in more supply.”
That was a year ago, and those that follow Yun know that trend lines are much the same…or are accelerating.
“The only way to lessen home price growth is to bring in more supply. It cannot be a simple case of existing homeowners listing their home,” he wrote in Forbes.
“Keep in mind that nearly all home sellers are also home buyers, and thereby not truly providing a net increase to the inventory. The same logic applies to underwater homeowners who come above water after home price gains. What is needed is for homebuilders to boost construction and/or for investors who bought for the purpose of renting to unload those rental properties onto the market soon. There is no indication of the second occurring because of nice rental income flows,” Yun said.
Then comes one of his punch lines, which ought to make manufactured housing and other factory-home building professionals sit up and take notice.
“The only way to bring additional supply, therefore, is for homebuilders to get really busy.”
Keep in mind that the National Association of Home Builders (NAHB) while motivated by sales growth, has pointed out their own labor/supply challenges.
“Economic logic says that about 1.1 to 1.2 million net new households are formed each year,” says Yun.
NAR and Yun’s data are rarely questioned. By contrast, MH Professionals must be mindful that the Manufactured Housing Institute (MHI) – which periodically makes claims and states figures that are often brought into serious question. Need an example from among MHI’s own members? Then see one of a number of possible examples, linked below.
“So that [about 1.1 to 1.2 million net new households] is the number of new homes needed to be built just to accommodate this rise in housing demand. In addition, 300,000 to 400,000 old, uninhabitable homes are demolished. Therefore, additional new homes of the same amount are needed just to replace the demolished ones. That puts the logical need for new home construction at right around 1.5 million per year,” NAR’s chief economist said.
“In fact,” Yun explained, “the 50-year annual average for housing starts, up to the year 2000, was 1.51 million units. Quite comforting to know logic and the long-term statistical average matches up. But from 2001 to 2006, which covers the early years of the housing bubble to the peak, housing starts averaged 1.8 million per year – an oversupply. From 2007 to 2016, from the crash and subsequent recovery, the average new home construction clocked in at only 870,000 per year. Over the total big cycle from 2001 to 2016, the average is 1.25 million, and not the prior historical average of 1.5 million.”
“But as said above, an average of 870,000 new units per year over the past decade imply 8.7 million cumulative new units, when 15 million units would have been needed. Taking the difference between the two figures, the country is short by 8.3 million housing units.”
That 8+ million housing units needed figure dovetails with other research reported by the Daily Business News, such as the National Low Income Housing Coalition claim that the U.S. is short some 8 million affordable housing units.
“Part of this shortage has been absorbed from people moving in to what had been empty buildings and hence falling vacancy rates,” Yun stated. “But as evidenced by fast-rising rents and fast-rising home prices, we cannot expect a further fall in vacancy rates to handle the ongoing and growing housing shortage gaps.”
NAR Chief Economist Yun’s Bottom Line
“The bottom line is that we need a few years of above-normal construction activity, say 1.7 million housing starts per year. Only then will we see a slight rise in vacancy rates to help lessen the rent growth pressure and bring the inventory of homes for sale to a more balanced market. However, based on various economists’ consensus projections of housing starts of 1.3 million in 2017 and at best 1.4 million in 2018, if proven true, then we are in for a housing shortage for at least four more years.”
Trading Economics cites the latest seasonally adjusted annual rate (SAAR) on November 20, 2017 as follows. “US Housing Starts at 1-Year High. … Building permits increased 5.9 percent to a seasonally adjusted annualized rate of 1,297 thousand…”
Note that Trade Economics quote almost spot on with what Yun’s forecast was. Isn’t that what professionals are supposed to do? Provide accurate research, data, and results?
The Manufactured Housing Industry – MHProNews Bottom Line
One month ago today, as part of the Daily Business News’ true State of the Manufactured Housing Industry in 2017 report series, we spelled out that 8 million housing units needed.
That same report also notes that domestic and imported prefab home builders are targeting the U.S. market. So manufactured housing is not without competition for this opportunity.
The 45th president has long promoted thinking and dreaming big.
Compare the President Trump approach to that of MHI President Richard “Dick” Jennison.
Whatever agenda, motivation, missed opportunities – or fumbles – etc. that one may want to ascribe to MHI and its leadership, the reality is this. As they reported previously – per a Harvard report – the manufactured housing is poised for serious growth.
Why the industry has failed to tap those potential opportunities is a topic that MHI is invited to respond to anew.
But in Tunica in 2017, and later in Deadwood, MHI declined the opportunity to comment, engage or discuss the issues.
The invite is extended to them – and Berkshire Hathaway – again to publicly defend, discuss or debate their track record, via a video format that will allow the entire industry and others to watch and see for themselves.
Until BH/MHI engage in that fashion,
- industry reader news tips, and
- third party research both continue to point to the conclusion that BH/MHI is – for better or worse – running their own game plan.
If that game plan was performing according to the industry’s potential, this column would not need to be written.
“The only way to bring additional supply, therefore, is for homebuilders to get really busy,” said Yun.
On Monday, MHProNews will on once more shed light on how industry professional need not wait on Arlington, VA based MHI – or anyone else.
You can be the change in your own market. The selling opportunities – per Yun, and other sources – point to the potential to increase sales 10x in most local markets, in an ethical and sustainable fashion. “We Provide, You Decide.” © ## (News, fact checks, analysis, commentary.)
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Submitted by Soheyla Kovach to the Daily Business News for MHProNews.com.