The price of a home in the U.S. is rising so fast that fewer people can afford to buy one. Sales of existing homes fell unexpectedly in July, marking the first time that sales fell in back-to-back months since 2015.
Are these rising home increases a result of another speculative housing bubble, or are they a reflection of inadequate supply? While housing markets are unique from city to city, housing data at bigger scales suggest the latter – there just isn’t enough supply.
For example, the state of California estimates that it needs 180,000 new homes annually to keep up with population growth (CALmatters). However, new housing permits have been averaging only half of that in recent years.
In fact, the housing crash of the mid 00’s was so severe that despite 7 years of growth in new housing permits, levels are just now reaching the lows of prior housing recessions.
While inadequate supply may act as a drag on housing markets in the short-term, it’s a tailwind for new home construction and lumber prices over the long-term.
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