Bank of America Points to Major Supply Problem in US Housing Market

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.

Do are your thoughts on this? We’d love to hear from you.

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  • RE_Insider

    Here is a comment we received via email from one of our readers: if the banks had not sold the reo’s in bulk sale to investors who in turn rented them out until the market goes up we would not have a shortage of supple of homes they created this problem. if they would have listed the houses with the real estate brokers we could have sold them to the buyers.

  • RE_Insider

    From another reader: Yes, it is my opinion that the housing market is directly tied to the economic growth of our economy. The purchase of homes equal jobs in my opinion. The purchase of items used in homes such as remodel or repairs requires not only skilled workers but the purchase of materials, and these materials employ workers of all areas such as steel, wood, plastic and so on, and again, employs workers to build the items made from the materials. These workers in days of past then be came home buyers which kept the cycle moving. With the prices of homes so high along with the demands required to obtain a loan the economy will continue to rise and fall dramatically. There needs to be a consistent circle for the U.S dollar to have value.