Housing Deficit Has Soared 52% Since 2018, Says Freddie Mac
Demand for entry-level homes is expected to remain high for the rest of the decade.
In an update on the nation’s growing housing shortage, Freddie Mac is reporting the deficit soared 52% from 2.5 million in 2018 to 3.8 million in 2020 thanks in part to the effects of the COVID-19 pandemic.
In particular, the deficit in the supply of entry-level homes is even more acute, declared the mortgage GSE, with their share of overall construction down from 40% in the early 1980s to around 7% in 2019.
The update said the shortage was exacerbated in the pandemic by a 150% increase in lumber prices.
In recent decades, said Freddie Mac, the shortage has worsened by the increase in demand caused by low interest rates.
Freddie Mac said it expects the shortage will continue in the near future with the low mortgage interest rate environment, the high demand and the need for more space.
Demographics are likely to keep demand from dropping soon, Freddie noted, with Millennials at their peak first-time home buying age now constituting the largest group of Americans, 72 million strong.
“Given the large young adult cohorts entering the housing market, the demand for entry-level single-family homes should remain high for the rest of the decade,” Freddie Mac said.
In another demographic trend, the homeownership rate of the 25–34-year-olds has been increasing since 2016 after recovering from the impact of the Great Recession of 2008-09.
The starter-home problem has gotten worse through much of the millennium.
Since its cyclical peak, in 2004, the same year the same year homeownership crested, the supply of entry-level homes has dwindled steadily from a construction of 186,000 starter units that year to 65,000 in 2020.
Sam Khater, vice president and chief economist at Freddie Mac, has said the entry-level home construction shortage has strong implications for the wealth, health, and stability of prospective first-time homebuyers who have been harmed by the 12% increase of housing prices in the past year. In the surge, entry-level prices have escalated rapidly well above overall prices, triggering affordability issues for buyers to come up with even larger down payments, the researchers cautioned.