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U.S. Has a Shortfall of 6.5 Million Single-Family Homes Due to a Decade of Under-Building

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A decade of under-building has led to a shortfall of 6.5 million single-family homes in the U.S., according to a new report released Wednesday.

Realtor.com looked at household formation, housing starts, and home sales, and found that given how many households were formed between 2012 and 2022, the U.S. is short of 6.5 million single-family homes.

But that gap diminishes somewhat if households opted to live in multi-family construction, which has boomed. Including multi-family homes, the gap in housing units in the U.S. falls to 2.3 million homes.

Yet most of those multi-family units won’t necessarily provide a path to homeownership, said Hannah Jones, an economic analyst at Realtor.com.

‘Cooling buyer demand and builder confidence led to slower single-family construction and a shift in builder focus to multi-family last year.’ - Hannah Jones, an economic analyst at Realtor.com

“Cooling buyer demand and builder confidence led to slower single-family construction and a shift in builder focus to multi-family last year. While that brings greater supply to the market, most of it will be used for rentals and won’t address ongoing affordability challenges in the for-sale space,” Jones said.

Builders moved into building apartments, rather than single-family homes, “as the rental market remained profitable with nationwide rent hitting a new all-time high,” the report explained. “Through the first three quarters of 2022, an average 94.5% of all multi-family units started were intended to be used as rentals.”

Plus, “these homes take an average of 15 months to complete, and so their impact won’t be fully realized for some time,” Jones added, as compared to single-family homes that take on average 7 months to complete.

In 2022, the U.S. saw 2.06 million household formations, the report said. That refers to a group of people living together. Household formation affects the economy, as it drives demand for housing, and further down the line, spending on household appliances and furniture.

Affordability eroded homes become scarce and rates remain high

Between 2012 and 2022, there were 15.6 million households formed, Realtor.com said. Yet in this 10-year period, only 13.3 million housing units were started, and even fewer—11.9 million—completed.

Over that 10-year period, the rate of housing starts began to slow. Completions have climbed, yet they’re still not enough.

In 2022, about 1 million single-family homes were “started,” or rather, construction began on these homes. That’s 10.6% fewer than in 2021.

Multi-family starts were much higher, up 15% compared to 2021, reaching 545,000.

Amid this backdrop of a housing deficit, affordability has dwindled.

Just a tenth of new homes sold in the fourth quarter of 2022 were less than $300,000. That’s down from 41% of homes being below $300,000 in the fourth quarter of 2019.

“As inflation and mortgage rates likely soften later this year, buyers are likely to return to the market [and will be] in search of an affordable home, and the ongoing housing-supply shortage will only continue to put pressure on the market,” Danielle Hale, chief economist at Realtor.com, said.

Realtor.com acknowledges that its headline figure of 6.5 million “overstates the housing shortage,” since it doesn’t consider multi-family units as homes for buyers.

Learn more on Realtor.com

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2 Reasons for Doing Closing Paperwork in Person

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Closing on a property used to be a homebuyer rite of passage.

Sitting in a mortgage broker’s office, branded pen in hand, and signing seemingly hundreds of documents while wondering if you can steal yet another piece of candy from a bowl was the ritual everyone had to go through to own a little slice of the American Dream.

But closing remotely became standard as the pandemic progressed three years ago, and even though in-person activities have since returned, there are still buyers and sellers — and agents, too — who prefer virtual closings. 

Is this a good thing, as many remote shifts have been? Perhaps not. I spoke to three real estate professionals who shared why they still think it’s a good idea to do closing paperwork in person. Read on to find out why you might still want to do this milestone face-to-face. 

It’s a Person-to-Person Transaction

Closing on a house is something to be celebrated and commemorated, and there are conversations that could happen in the small talk between signing approximately 500 documents that add even more emotion to the process. 

“When our team is fortunate enough to represent a first-time homebuyer, we highly encourage an in-person closing,” Haley Cutter, with Boston-based Cutter Luxe Living, says. “This is an amazing milestone that our team loves to be a part of.”

“I had a recent closing where the seller was retiring and liquidating his investment properties. My buyers were new investors, and this was their first property. The seller took an hour after closing to talk to us about his successful investment strategy over the last 40 years,” Tarasa Hurley, a Realtor in Pittsburgh, says. She explains that this in-person interaction gave her clients a personal connection with someone they may not have met otherwise — and introduced them to someone who can offer years of wisdom and expertise. 

On another recent closing, adult children were selling their late mother’s home. Hurley describes the closing, “The mother lived a long life, but the children were still grieving. At the closing table, we found out that my clients had moved here to be part of the church that the mother helped found.” This personal moment created a connection that helped the children confirm that their mother would have been okay with the decision to sell the home — and the new residents.

She goes on to say, “My clients decided to keep the mother’s religious statue in the garden as a tribute. We had hugs and tears all around the table. Sometimes closings are not just financial; they create closure for families.”

Changes Can Be Made

“Simply put, signing closing paperwork in person allows margin for error. When the parties of the transaction sign in person with an escrow or closing agent, errors within the documents or a signature in the wrong place can be corrected instantly,” says Phil Greely, a licensed real estate agent in Seattle, pointing out the more practical reason to show up on closing day.

He explains that had a seller client scheduled to sign in-person, and, when the buyer’s agent opted to credit a small amount of money to the buyer, they had to adjust the documents and get the seller’s initials to approve the new terms.

“Because they were signing in person, the unsigned form was signed immediately during the scheduled signing. Had the seller been out of town or mailing documents back and forth, the closing date may have needed to be changed for this last-minute alteration,” says Greely.

Plus, both parties had a professional guiding them as they navigated the mountain of documents. Unless you buy and sell on a regular basis and these technical and legal terms never become second nature, having your agent by your site is a huge bonus. 

Read more on Apartment Therapy.

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Homes are getting smaller — which could improve affordability

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Newly built homes continue to lose square footage. But agents see an upside for buyers seeking more affordable options.

In the realm of new construction, builders are finding that affordability is now trumping pandemic space.

According to U.S. Census data and analysis by the National Association of Homebuilders (NAHB), the median square footage of a single-family home dropped to 2,203 in the fourth quarter of 2022, another dip from Q3 and the lowest level since 2011. 

It’s quite a turnaround from the early days of the pandemic, when people wanted more space because they were spending more time at home. 

But space and affordability are competing factors, and in a higher-interest-rate environment, affordability carries more weight, particularly for first-time buyers. “The tighter budget factor is likely to dominate in coming quarters,” said Robert Dietz, chief economist at NAHB.

According to the NAHB/Wells Fargo Housing Opportunity Index, only 38.1% of new and existing homes sold in the fourth quarter were affordable to families earning the U.S. median income of $90,000. That’s the third straight record low for the index, which began tracking the data on a consistent basis in 2012. It’s also a big drop compared to the fourth quarter of 2021, when the index was at 54.2%.

Affordability appears to play a role in home size. Prior to recent months, the trend over the past 25 years has been to build larger single-family homes, with two noticeable dips. 

The first dip was prior to the Great Recession, when home prices were skyrocketing. It happened again between 2016 and 2020 as the economy recovered, and construction companies could once again develop starter homes after years of running into funding challenges.

Finding buyers for smaller homes

Changes in land use policies have enabled the construction of more small homes — sometimes very small homes on a shared lot. In Kirkland, a city on the shores of Lake Washington near Seattle, Windermere broker Max Rombakh said he’s seeing different housing options after the city adopted zoning changes to address the shortage of mid-level housing, sometimes referred to as “missing middle housing.” 

The changes have resulted in more options for buyers and homeowners, including cottages and accessory dwelling units that are smaller but attractive to those looking for a good location, Rombakh said. 

“I would want to own the least expensive real estate in the most expensive neighborhood,” Rombakh said, adding that such homes tend to appreciate faster because of the location. The smaller homes Rombakh has seen also tend to have more upgrades, which is a major selling point.

“Ultimately the majority of consumers that are buying smaller homes are downsizers or starter families,” he said. 

While some new buyers are skeptical, purchasing a larger home that’s farther away can have other drawbacks. Plus, smaller homes mean lower utility bills and property taxes, as well as less maintenance.

One downside for some buyers: Smaller homes tend to only have a one-car garage — or no garage at all. “That’s usually the biggest hurdle we’re getting people over,” Rombakh said, adding that yards also tend to be smaller.

However, affordability is often a deciding factor, especially in a place like Kirkland, where the average home price can be in the $1 million range.

Keep reading.

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See You at the Carolina Wedding Fair!

 
 

West + Main Homes NC will be one of 35 specialized vendors at the Carolina Wedding Fair taking place on March 19th from 12-6pm at Carolina Home & Garden.

A local real estate agent will be available to answer questions regarding our current market. West + Main Homes NC offers several First Time Home Buying classes throughout the spring + summer months, guests at this event will have the opportunity to be the first to sign up.

We will be showcasing current + upcoming listings in Carteret County + short term beach rentals for bridal/wedding parties or honeymoon vacations. Fun giveaways, including a free night at a local beach house getaway + a gift card to The Island Grille will be gifted to one lucky couple.

You can purchase tickets here, guests will receive a glass of prosecco entering the fair + a gift bag of goodies.

Reach out to Gray at gray@westandmainnc.com with any questions about this event.

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Carteret County Real Estate Market Report from February 2023

 
 

The Carteret County real estate market continues to stabilize, leaving buyers and sellers looking ahead to the spring selling season to provide insights into how the rest of the year will unfold.

Buyers are watching rates closely and patiently waiting for new inventory to hit the market. They are more discerning about home prices, less willing to compete and will only jump into a bidding war if the house is move-in ready and suits their needs. If a home has been sitting on the market or has recently experienced a price reduction, buyers are more inclined to negotiate a rate buy down than a reduction in the purchase price. As buyer activity increased in February and more homes hit the market, the average close price for a detached home rose 13.45 percent to $ 586,673.

New listings, pending sales and closed sales all trended upward month-over-month for attached and detached homes. The average days in MLS for single family homes rose from 57 days in January to 68 in February.

While activity in the market is on the rise, buyers are eager for more choices. At the end of the day, Carteret County still has an inventory problem. New listings for both detached and attached homes are the lowest we have seen in a long time.

The source for more inventory lies with potential sellers who are contemplating a move; however, if these sellers need to buy another home, they are between a rock and a hard place. Their home is no longer working for their lifestyle, but facing an interest rate that may be more than three percent higher than their current rate is a hard pill to swallow. The good news for sellers is that we are still primarily in a seller's market. Buyers are paying what sellers are asking.

Buyers are actively looking and the majority of the market still favors sellers. Homes may not sell in the first week-end, or even the first 30 days, but they are selling and prices are staying strong. As we enter Carteret County’s spring market, which traditionally starts this month, there is still much to love about the 2023 real estate market.

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