Understanding Today’s New Home Inventory: A Look Back at 2009 Levels

Headlines often discuss the inventory of new homes and how we’ve returned to levels not seen since 2009. You may be thinking: oh no, here we go again. Many remember the housing crash of the late 2000s and worry we’re making the same mistakes.

However, before fear takes over, consider this: headlines are often designed to capture attention. They can terrify rather than clarify. Many times, they don’t provide the complete context. Let’s take a step back and really examine what the data reveals.

Why This Isn’t Like 2008

While it's true the number of new homes on the market has reached levels seen in 2009, this should not raise alarm bells.

Here’s the essential context. As shown in the data, a graph clearly illustrates that the high point of oversupply occurred in 2007-2008. In contrast, 2009 was when the new home construction began to decline (see graph below):

The overbuilding that led to the housing crash took place in the years before 2008. By 2009, construction was already on the decline. Thus, claiming we’ve hit 2009 levels does not mean we are repeating past overbuilding.

Builders Have Actually Underbuilt for Over a Decade

Let’s dive into more data for clarity. Following the crash, builders significantly reduced production. They constructed far fewer homes than the market required. This consistent underbuilding lasted over ten years. Consequently, a severe housing shortage developed, impacting home buyers to this day.

The graph below, utilizing Census data, illustrates the number of new homes built annually over the past 52 years. You can easily spot the following trends:

• The overbuilding before the crash (in red)

• The period of underbuilding that ensued (in orange)

• How we are only now returning to a normal level of construction:

Today’s scenario is completely different. Builders aren't overbuilding; they're catching up.

In a recent article, Odeta Kushi, Deputy Chief Economist at First American, highlights this deficit, discussing why the recent surge in construction is a positive for today’s market, particularly for buyers. She states:

“This means more homes on the market and more options for home buyers, which is good news for a housing market that has been underbuilt for over a decade.”

Bear in mind, like anything else in real estate, supply and demand can differ by market. Some areas may have more new homes, while others may have fewer. However, on a national scale, there’s no need for concern. This situation is distinctly different from past crises.

The Benefits of Increased Home Inventory

Increased home inventory provides several advantages for buyers. With more options available, prospective homeowners can take more time to make informed decisions. They can compare features, prices, and locations, leading to a more satisfied purchase.

More homes on the market can also relieve some pressure on home prices. Supply and demand dynamics can help stabilize or even lower prices in certain markets. This is especially crucial in a time when affordability is a major concern for many buyers.

Furthermore, as competition among builders increases, it may lead to enhanced features and quality in new constructions. Builders are likely to prioritize sustainable practices and modern amenities to attract home buyers, creating a win-win situation for everyone involved.

Key Takeaways

• We are not witnessing a repeat of the 2008 housing crash.

• Builders have been underbuilding for a decade, resulting in a housing shortage.

• Increased home inventory is beneficial for buyers, offering more options and potentially better prices.

  
  

Bottom Line

Regardless of what you may read or see, the rising number of newly constructed homes on the market is not a national red flag. Instead, it signals that builders are finally catching up after years of underbuilding.

If you're interested in discussing what’s happening in our local market or any specific queries, let’s connect.

You can also explore more about the current housing trends and inventory here.