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New single-family homes under deficit. Will it be addressed as the economy improves?

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The single-family housing production fell in 2009 about one million units shorts of what would be needed to function in a normal economy. Builders have catching up to do as the economy improves when households return to the “trend levels”, according to a study by NAHB’s housing economics.

Most builders remain cut off from the financing they need from banks to renew or continue production. It looks like 2010 will be no exception this year will add another one million units to the growing deficit.

There was an excessive amount of single-family building from 2003-2005 but overbuilding ended in 2006. The subsequent downturn was severe to more than offset annual surpluses.

“As a result, the single-family housing market in the U.S. currently finds itself in a significantly underbuilt state — in the sense that excess or pent-up demand for new construction exists, compared to the long-term trend we would see if housing, labor and credit markets were functioning normally and generating a normal rate of household formations,” the report says.

Under-building is occurring in most states the study found. That includes those that saw the most overheated markets at the height of the boom.

Cumulative underbuilding, to various extents, exists in 45 of the 50 states and the District of Columbia, according to calculations by the NAHB economists.

The exceptions are Alabama, Washington, D.C., Hawaii, Montana, North Dakota and Wyoming. Washington, D.C. The other states continued to accumulate housing surpluses until 2008, when their cumulative overbuilding began to be worked off.

States saw the hottest markets in Arizona, California, Florida, and Nevada all now have single family deficits.

“It is probably not surprising that household formations have stalled and remain depressed while the national unemployment rate is above 9%,” the study concludes. “But it would be difficult to explain why households would choose to remain bundled together after house prices stabilize and labor markets improve.”

The housing deficit represents a significant pent up demand that will need to be worked off and begin single-family housing production in a positive way.


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