Despite the recent slowdown in home sales, inventories remain low, with the months supply averaging 6 months or less for 20 consecutive months. This dynamic has pressed up on prices, but new construction has been slow to respond.

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Prior to 2008 and the housing bust, the long-term annual average ratio of new employment to single-family construction starts was 1.5, or roughly 1.5 jobs created for every single family home built. Over the last three years, that ratio averaged 3 jobs per home implying a large construction shortage. What’s more, 32 states and the District of Columbia averaged higher than 1.5, the historical average, over this same period.

A closer analysis of this imbalance indicates that it is correlated with REALTORS®' expectations for prices, which suggest continued price growth over the next twelve months, and that part of builders’ reticence is linked to affordability constraints. For more about this trend and builders’ response to tight inventories, see the article “Sluggish Construction Portends Steady Price Growth”.