A recent study conducted by Bank of America Merrill Lynch’s Michelle Meyer indicates a housing demand is increasing while supply still lags. Bottom line, the US housing market has a major supply problem and this is a looming issue for the US economy at large.
This chart below illustrates the problem.
Recently, Conor Sen at New River Investments wrote about the coming affordability and supply conundrum soon to face the housing market, sounding something of an alarm on the prospect of a recession in the US developing over the next couple of years.
“My view is that the housing cycle is the business cycle, and on this basis ‘potential output’ should be much, much higher than it is today,” Sen wrote.
“We’ve underbuilt housing, particularly single-family, for years, and Millennial housing needs will be immense for the next two decades. But because of how much damage occurred in the housing sector and how slow and long the recovery took, other industries absorbed housing sector resources. And now we’re nearing overall US economic resource utilization levels that typically makes the Fed uncomfortable.”
The basic problem posed by a tight housing supply is that it likely leads to continued upward pressure on home prices continuing a lack of affordability for first-time homebuyers.
This also keeps renters renting and, with rent inflation on the rise, potentially accelerate inflationary pressures already percolating in the US economy.
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