Lumber News » New Homes Sold and For Sale November 2010

New Homes Sold and For Sale November 2010

New home sales were up about 5% in November, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. At the same time, there were approximately 197,000 new homes for sale, which is the lowest since April of 1968. We have a number of forces converging that should increase new home permits and starts. Economists generally agree that annual demand for new housing units is somewhere around 1.8 million. Some economists say that 2 million units are required annually, while others think that the actual demand is around 1.5 million. Here’s part of how they come up with these numbers. The primary drivers of housing unit demand are new household formation and housing unit destruction. We regularly hear that new households, on average, form at a rate of 850,000 per year. Our population continues to grow, currently at a rate of about 3 million people per year. In 1990, there were over 4 million live births in the US, those young people (along with those born in subsequent years) should be forming new households soon. Currently, new household formation should be 750,000 – 1,000,000, yet young people still choose to live with parents, or stay single with several young adults living together. This “pent-up” demand should be a major force, as young people begin to start new households at an increasing rate. Another factor is that homes have been being destroyed by fire, flood, storms and urban renewal, and many have not been being replaced.  In 2005, roughly 340,000 homes were destroyed by Hurricane Katrina alone, and fire, flood and storms are constantly destroying more every year.

About 5 million “used” homes are currently for sale, and as people sell those units, they will need to move into another housing unit.  Most of the homes for sale are currently occupied by owners and renters that wish to move to a different location, or a larger or smaller housing unit.  This “musical chairs” of houses requires many empty houses, since a buyer cannot simultaneously buy and sell a house and make an instant move.   Foreclosures can fill a part of the need, but not everyone wants to buy a foreclosure.  New homes typically fill a part of this need, but there is not much selection there.   It wouldn’t take much to “soak up” all of the available new homes.   Also, as employment picks up (which it seems to be slowly doing), less homes will be lost to foreclosure and most of those who lost their homes to foreclosure will want to move back into a home.  As demand for new homes domestically and globally picks up, lumber prices will move up.

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